nep-int New Economics Papers
on International Trade
Issue of 2017‒11‒05
forty-four papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. On the Relationship Between Quality and Productivity: Evidence from China's Accession to the WTO By Haichao Fan; Yao Amber Li; Stephen R. Yeaple
  2. Learning-by-Exporting across Export Destinations: Evidence from Lithuanian Manufacturing By Tobias D. Ketterer
  3. Services liberalization and GVC participation: New evidence for heterogeneous effects by income level and provisions By Woori Lee
  4. The Politics of International Trade By Wilfred J. Ethier; Arye L. Hillman
  5. The world periphery in Global Agricultural and Food Trade, 1900-2000 By Gema Aparicio; Ángel Luis González-Esteban; Vicente Pinilla; Raúl Serrano
  6. All-Around Trade Liberalization and Firm-Level Employment: Theory and Evidence from China By Antonio Rodriguez-Lopez; Miaojie Yu
  7. The Role of Trade and Offshoring in the Determination of Relative Wages and Child Labour By Alessandro Cigno; Giorgia Giovannetti; Laura Sabani
  8. Technology, market structure and the gains from trade By Giammario Impullitti; Omar Licandro; Pontus Rendahl
  9. Twin Peaks By Fabrice Defever; Alejandro Riaño
  10. Trade Cost Reduction and Foreign Direct Investment in a Vertical Structure By M. Emranul Haque; Arijit Mukherjee; Burcu Senalp
  11. Policy Review: Is Inequality a Policy Choice? By Mamoon, Dawood
  12. Remaking Ad valorem equivalents of non-tariff measures in ASEAN By Lili Yan ING; Olivier CADOT
  13. Internalizing Global Value Chains: A Firm-Level Analysis By Laura Alfaro; Paul Antràs; Davin Chor; Paola Conconi
  14. The phase-out of second-hand clothing imports: what impact for Tanzania? By Calabrese, Linda; Balchin, Neil; Mendez-Parra, Maximiliano
  15. Consequences of Brexit and Options for a "Global Britain" By Steven Brakman; Harry Garretsen; Tristan Kohl
  16. Labour content of international trade in intermediates: the case of Portugal By Enrique Martínez-Galán; Maria Paula Fontoura
  17. Industrialisation and the Big Push in a Global Economy By Udo Kreickemeier; Jens Wrona
  18. Globalisation and Trade Liberalisation in Supporting GVCs Upgrade: The Case of the Republic of Korea By Lurong Chen
  19. Emerging multinational enterprises from East and Southeast Asia in V4 countries and Slovenia By Katalin Völgyi
  20. International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the UK By Li Liu; Tim Schmidt-Eisenlohr; Dongxian Guo
  21. International Emigrant Selection on Occupational Skills By Alexander Patt; Jens Ruhose; Simon Wiederhold; Miguel Flores
  22. Globalization and Executive Compensation By Wolfgang Keller; William W. Olney
  23. Boon or Bane? Trade Sanctions and the Stability of InternationalEnvironmental Agreements By Achim Hagen; Jan Schneider
  24. Openness and Government Size:The Compensation and Efficiency Hypotheses Considered for Nigeria By Olawole, Kolawole; Adebayo, Temidayo
  25. Who Voted for Brexit? A Comprehensive District-Level Analysis By Sascha Becker; Thiemo Fetzer; Dennis Novy
  26. Trade Policy and Structural Reforms at the Zero Lower Bound: Lessons Learned and Suggestions for Europe By Alessandro Barattieri; Matteo Cacciatore; Francesco Costamagna
  27. Determinants of Firm-Level Domestic Sales and Exports with Spillovers: Evidence from China By Badi H. Baltagi; Peter H. Egger; Michaela Kesina
  28. A Theory of Trade Policy under Dictatorship and Democratization By Benjamin Zissimos
  29. The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies By Brian K. Kovak; Lindsay Oldenski; Nicholas Sly
  30. The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity By Johannes Boehm
  31. Voluntary Export Restraints in a Trade Model with Sticky Price: Linear and Nonlinear Feedback Solutions By L. Lambertini; A. Palestini
  32. The Nexus of CO2 Emissions, Energy Consumption, Economic Growth, and Trade-Openness in WTO Countries By Lars Sorge; Anne Neumann
  33. Trade, Inequality and Distribution-Neutral Fiscal Policy - An Elementary Framework By Sugata Marjit; Lei Yang
  34. Driven up the wall? Role of environmental regulation in innovation along the automotive global value chain. By Suchita Srinivasan
  35. Strategic Environmental Policy, International Trade and Self-enforcing Agreements: The Role of Consumers' Taste for Variety By Finus, Michael; Al Khourdajie, Alaa
  36. Globalisation and Income Inequality Revisited By Florian Dorn; Clemens Fuest; Niklas Potrafke
  37. Does Tax Haven FDI Influence Firm Performance? By Gerda Dewit; Dermot Leahy; Chris Jones; Yama Temouri
  38. To Enhance E-Commerce Enabling Connectivity in Asia By Fukunari Kimura; Lurong Chen
  39. Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters By Christopher Hansman; Jonas Hjort; Gianmarco León; Matthieu Teachout
  40. Internationalization of Indian multinational enterprises - motivations, strategies and regulation from the experience of Indian investments - a focus on Europe By Tamas Gerocs
  41. Services Trade Policy, Domestic Regulation and Economic Governance By Matteo Fiorini; Bernard Hoekman
  42. Externalities, Institutions and Public Perception: The Political Economy of European Integration Revisited By Hans Peter Grüner
  43. The Healthy Immigrant Paradox and Health Convergence By Amelie F. Constant
  44. The relevance of inter-regional trade data produced by the 2012 Commodity Flow Survey for multi-regional CGE modelling By Glyn Wittwer

  1. By: Haichao Fan (Institute of World Economy, School of Economics, Fudan University, Shanghai, China); Yao Amber Li (Division of Economics, The Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology; Research Affiliate of the China Research and Policy Group at University of Western Ontario); Stephen R. Yeaple (Department of Economics, Pennsylvania State University; Research Associate at National Bureau of Economic Research; Research Affiliate at Ifo Institute)
    Abstract: This paper presents an analysis of the effect of China’s entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China’s tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports towards high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks’ neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading.
    Date: 2017–10
  2. By: Tobias D. Ketterer
    Abstract: This paper investigates micro-level effects of export market entry on firm-level productivity. In particular, we study the effects of single and multiple export market entry, and additionally differentiate between the effects of export market entry by destination country. To isolate the impact of participation in foreign markets we employ matching techniques. Using micro-level trade and balance sheet data for firms in Lithuania, we show that single export market entry is linked with larger post-entry productivity growth for new export market entrants, relative to similar non-exporting firms. Moreover, we find support for more learning-by-exporting when looking at firms exporting to more sophisticated markets with presumably higher productivity standards.
    JEL: F14 F18 Q56
    Date: 2017–07
  3. By: Woori Lee (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: Participation in global value chains (GVCs) is a key element in the industrialization strategies of many developing nations. Many studies look at the determinants of GVC participation but most focus on domestic regulatory environments, the cost of doing business, and trade policy. This paper investigates the possibility that services also matter by empirically testing for a link between higher GVC participation and services liberalization. Using the gravity framework, I examine the impact of services trade agreements on gross trade and GVC-trade (backward and forward participation). I find that services trade agreements promote both, but especially GVC-trade, although the effects are heterogeneous: the impact is bigger for developing nation exporters. Moreover, I find that services agreements that allow the export of services without local presence (non-establishment rights) are particularly important in fostering GVC participation.
    Keywords: Services liberalization, Global value chains, Regional trade agreements, Gravity equation, Non-establishment rights
    JEL: F13 F14 F15
    Date: 2017–10–26
  4. By: Wilfred J. Ethier; Arye L. Hillman
    Abstract: Traditional international trade models explain comparative advantage and describe aggregate gains for a country from trade and from terms-of-trade improvement but do not address the politics of international trade policy. A positive or predictive model that studies the politics of trade policy requires two premises, both with public choice origins: (1) that political self-interest underlies policy determination of trade policy rather than social-welfare objectives, and (2) politically assignable rents are preferred to budgetary revenue from trade restrictions and aggregate gains from terms-of-trade improvement. Originating political-economy models of protectionism and reciprocal trade liberalization acknowledge on both premises. Subsequent popular (and popularly replicated) models of trade policy include the first premise but not the second. The popular models are inconsistent with the actual conduct of trade policy. We also present public-choice perspectives on strategic trade policy, the most-favored nation clause, preferential trading, duty-free zones, globalization, and direct voting on trade policy, and we review and interpret empirical evidence.
    Keywords: political support, rent creation, budgetary revenue, trade negotiations
    JEL: F13
    Date: 2017
  5. By: Gema Aparicio (Independent Scholar, Fort Wayne, Indiana, U.S.A); Ángel Luis González-Esteban (Universitat Pompeu Fabra, Barcelona, Spain); Vicente Pinilla (Universidad de Zaragoza and Instituto Agroalimentario de Aragón, Zaragoza, Spain); Raúl Serrano (Universidad de Zaragoza, Zaragoza, Spain)
    Abstract: In the last two hundred years, agricultural trade has grown at a remarkably rapid rate. In the first globalizing wave, international trade was based on the exchange of primary products for manufactured goods. This provided important opportunities for complementarity in certain countries on the periphery that took advantage of the opportunity to base their economic development on the growth of their exports and the linkages between them and the rest of the economy. However, most of the agricultural exporting countries, obtained few benefits from this model of development. In the second wave of globalisation, an intra-industrial trade increasingly replaced this pattern of trade. In addition, the more developed countries tended to protect their agricultural production, which have been a major obstacle to agricultural trade.
    Keywords: Agricultural and Food Trade, Globalisation, World Periphery
    JEL: F14 N50 N70 Q17
    Date: 2017–10
  6. By: Antonio Rodriguez-Lopez; Miaojie Yu
    Abstract: Chinese firms faced an all-around trade liberalization process during the early 2000s: lower barriers from other countries on Chinese goods, and lower Chinese barriers on other countries’ goods and inputs. Using novel firm-level tariff data for trading Chinese manufacturing firms, this paper disentangles the effects of each type of trade liberalization on Chinese firm-level em-ployment. For each firm type, reductions in Chinese and foreign final-good tariffs are associated with job destruction in low-productivity firms and job creation in high-productivity firms. In contrast, the net effect of reductions in Chinese input tariffs is limited to job destruction in low-productivity ordinary exporters.
    Keywords: firm-level employment, firm-level tariffs, heterogeneous firms
    JEL: F12 F14 F16
    Date: 2017
  7. By: Alessandro Cigno; Giorgia Giovannetti; Laura Sabani
    Abstract: Incorporating family decisions in a two-period.model of the world economy, we predict that trade liberalization raises the skill premium and reduces child labour in developing countries where the adult labour force is sufficiently well educated to attract production activities from abroad that will increase the demand for skilled relative to unskilled labour. Elsewhere, liberalization will reduce the skill premium, but it will not necessarily raise child labour. Our prediction is not rejected by the data, and it explains why child labour is negatively associated with trade openness in those developing countries where the labour force was relatively well educated when the liberalization took place, but not in the others.
    Keywords: child labour, education, trade liberalization, skill endowments, skill premium
    JEL: D13 D33 F16 J13 J24
    Date: 2017
  8. By: Giammario Impullitti; Omar Licandro; Pontus Rendahl
    Abstract: We study the gains from trade in an economy with oligopolistic competition, firm heterogeneity, and innovation. Oligopolistic competition together with free entry make markups responsive to firm productivity and trade costs. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Nevertheless, the downward pressure dominates and the average markup declines, deterring firms from entering the market and leading to higher market concentration. Neither the increased concentration nor the incomplete pass-through of trade costs to export markups are strong enough to compensate for the increase in competition on domestic sales. Thus the overall effect of trade on markups is pro-competitive and a key source of the associated welfare gains. In addition to markups, selection and innovation provide additional channels through which the trade-induced effect on competition impacts welfare. In a quantitative exercise, we decompose the total gains from trade into these three contributing channels; we find that innovation plays a small but non-negligible role, while the main component is equally split between the pro-competitive and the selection channel.
    Keywords: Gains from Trade, Heterogeneous Firms, Oligopoly, Innovation, Endogenous Markups, Endogenous Market Structure.
    Date: 2017
  9. By: Fabrice Defever; Alejandro Riaño
    Abstract: Received wisdom suggests that most exporters sell the majority of their output domestically. In this paper, however, we show that the distribution of export intensity not only varies substantially across countries, but in a large number of cases is also bimodal, displaying what we refer to as 'twin peaks.' We reconcile this new stylized fact with an otherwise standard, two-country model of trade in which firms are heterogeneous in terms of the demand they face in each market. We show that when firm-destination-specific revenue shifters are distributed lognormal, gamma, or Fréchet with sufficiently high dispersion, the distribution of export intensity has two modes in the boundaries of the support and their height is determined by a country's size relative to the rest of the world. We estimate the deep parameters characterizing the distribution of export intensity. Our results show that when the conditions for the existence of twin peaks are met, differences in relative market size can explain most of the observed variation in the distribution of export intensity across the world.
    Keywords: exports, export intensity distribution, bimodality, firm heterogeneity
    JEL: F12 F14 C12 O50
    Date: 2017–10
  10. By: M. Emranul Haque; Arijit Mukherjee; Burcu Senalp
    Abstract: Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the well-known “proximity-concentration” hypothesis does not support this view. We provide a simple explanation for this phenomenon. We show that a lower trade cost on the intermediate goods (with or without a trade cost reduction on the final goods) increases the incentive for FDI in the final goods market. In this respect, we show the roles played by the production technologies of the firms.
    Date: 2017
  11. By: Mamoon, Dawood
    Abstract: The paper is a short literature review that suggests that trade policy as opposed to general measures of openness does correlate with inequality. The review suggests that developing countries are not ready to fully integrate with global trade because significant segments of populations are unskilled whereas global trade patterns benefit only skilled or semi-skilled.
    Keywords: Inequality, Integration, Trade Policy
    JEL: F13 F16
    Date: 2017–10–23
  12. By: Lili Yan ING (Economic Research Institute for ASEAN and East Asia (ERIA)); Olivier CADOT
    Abstract: To measure Ad valorem tariff equivalents (AVEs) of non-tariff measures (NTMs), we propose a new alternative that relies on the estimation of bilateral trade flows on two-way panels at the HS 2-digit level with importer, exporter, and product fixed effects and interaction terms between NTM variables and a full vector of country-specific characters. Our results show AVEs for technical barriers to trade measures on manufactured products, for ASEAN countries and the whole sample are 4.5% and 5%, respectively. The AVEs for sanitary and phytosanitary measures on agricultural and food products for ASEAN countries and the whole sample are 6.5% and 6.7%, respectively. It should be noted that AVEs can mean very different things depending on whether they play as correction of a market failure. This depends on the technical capabilities of domestic regulatory agencies.
    Keywords: Non-tariff measures, ad valorem equivalent, trade, tariff, regional trade, ASEAN
    JEL: F1 F5
    Date: 2017–10
  13. By: Laura Alfaro; Paul Antràs; Davin Chor; Paola Conconi
    Abstract: In recent decades, advances in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. We describe a property-rights model of firm boundary choices along the value chain that generalizes Antràs and Chor (2013). To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage, as well as by the firm's productivity. Our results suggest that contractual frictions play an important role in shaping the integration choices of firms around the world.
    Keywords: global value chains, sequential production, incomplete contracts
    JEL: F14 F23 D23 L20
    Date: 2017–10
  14. By: Calabrese, Linda; Balchin, Neil; Mendez-Parra, Maximiliano
    Abstract: The East African Community has begun phasing-out imports of second-hand clothing to promote the development of the domestic garment sector. Using trade data and information obtained from the exporters, this study produces the first estimate of disaggregated imports of second-hand clothing in Tanzania. The net import of used clothing is estimated at over 540 million pieces per year, compared to a domestic production of new clothing of 20 million pieces and import of 177 million pieces of new clothing. This study assesses the short-term impact of the phase-out on the domestic garment sector. Depending on the substitutability between new and used clothing, the phase-out could prompt increased import of new clothing. It could also prompt employment losses and generate costs for the poorest consumers. In the longer term, the phase-out is unlikely to promote the development of the garment sector unless the existing constraints are properly addressed.
    Keywords: trade policy; import phase-out; second-hand clothing; garment; Tanzania
    JEL: F13 F14 L67
    Date: 2017–10–23
  15. By: Steven Brakman; Harry Garretsen; Tristan Kohl
    Abstract: The United Kingdom has opted to leave the European Union. The trade and welfare consequences of this decision are large; most studies predict a trade and welfare loss for both the UK and the EU. The UK parliament has indicated that it aims for new and ambitious trade agreements following Brexit, but has not been explicit what type of trade agreements it envisions (except that it should be broad) or with whom specifically. In this paper, we consider the UK’s options. We first confirm, in line with existing studies, that the negative trade consequences of Brexit are substantial, especially for the UK and also for the EU. After reviewing all potential options, we have a simple answer to the question whether the UK has an alternative for the existing trade agreement with the EU. The answer is: No. Only a trade agreement with the EU can compensate for the negative trade consequences of Brexit.
    Keywords: Brexit, Gravity Model, trade predictions
    JEL: F13 F14
    Date: 2017
  16. By: Enrique Martínez-Galán; Maria Paula Fontoura
    Abstract: This paper addresses the relation between international trade and employment in Portugal with regard to the labour content of trade in intermediates. It considers both the overall level of employment and labour disaggregated by skills (high-skill, medium-skill and low-skill). The assessment makes use of the newly developed internationally linked inputoutput (IO) database named World Input-Output Database (WIOD), complemented with the Socio-Economic Accounts (SEA) for skill-types of labour. The period analysed – 1995-2009 - is the longest possible taking into account the two databases used. The amount of labour required to produce imported intermediates (exported intermediates) is taken as a proxy to the job effect of downward (upward) embeddedness of the country into Global Value Chains (GVCs). We conclude that intermediates’ exports are basically intensive in low-skilled labour although presenting a tendency to skill-upgrading during the period analysed, while intermediates’ imports are proportionally much more intensive in skilled labour, predominantly of a medium skill level, an expected result in a country of an intermediate level of development. We also concluded that the estimated net labour content of jobs in trade in intermediates in the final year of the period analysed was globally negative in 51 thousand jobs. Main net losses were observed with Brazil, People’s Republic of China and India, while main net gains were observed with Spain and France. Key Words: labour content of trade; Global Value Chains; Portugal; trade in intermediates.
    Date: 2017–07
  17. By: Udo Kreickemeier; Jens Wrona
    Abstract: In their famous paper on the “Big Push†, Murphy, Shleifer, and Vishny (1989) show how the combination of increasing returns to scale at the firm level and pecuniary externalities can give rise to a poverty trap, thereby formalising an old idea due to Rosenstein-Rodan (1943). We develop in this paper an oligopoly model of the Big Push that is very close in spirit to the Murphy-Shleifer-Vishny (MSV) model, but in contrast to the MSV model it is easily extended to the case of an economy that is open to international trade. Having a workable open-economy framework allows us to address the question whether globalization makes it easier or harder for a country to escape from a poverty trap. Our model gives a definite answer to this question: Globalisation makes it harder to escape from a poverty trap since the adoption of the modern technology at the firm level is impeded by tougher competition in the open economy.
    Keywords: poverty traps, multiple equilibria, international trade, technology upgrading, general oligopolistic equilibrium
    JEL: F12 O14 F43
    Date: 2017
  18. By: Lurong Chen (Economic Research Institute for ASEAN and East Asia (ERIA))
    Abstract: The Republic of Korea (henceforth Korea) has managed to achieve sustained economic growth by moving up the value chains. It took Korea only 15 years to transform from an upper middle-income into a high-income country. This paper uses Korea as a case study on how a country can build up core competitiveness in hi-tech industry and develop into a globally competitive and innovative economy by moving up the value chains. It shows the effectiveness of globalisation and trade liberalisation in supporting the country's domestic development strategy.
    Keywords: global value chains (GVCs), Republic of Korea, Asian regionalism
    JEL: F15 F53
    Date: 2017–09
  19. By: Katalin Völgyi (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This study is prepared in the framework of a research project on outward foreign direct investments of non-European emerging market multinationals in the CEE region with special focus on V4 countries and Slovenia. It investigates outward FDI from South Korea, Taiwan, Malaysia, Thailand, Indonesia and Vietnam. In this preliminary stage of the research we first analyze the general trends of global outward FDI of these six Asian countries from the perspective of geographical/sectoral distribution, investors’ size, motivations (push factors) and supporting government policy etc. Then we try to measure the weight and importance of outward FDI of the six Asian countries in the EU and especially in the CEE region. We found that these Asian countries account for only a low share (0.5%) of the total inward FDI stock of the EU. Out of the six countries, South Korea, Taiwan and Malaysia are the biggest investors in the whole EU and in V4 countries as well. South Korean and Taiwanese investments in the manufacturing sector, which benefit from the lower labour costs, represent the dominant features of the total outward FDI of the six Asian countries in the V4 countries. To determine the characteristics of Thai, Vietnamese and Indonesian investments in V4 countries, we need to conduct more empirical research.
    Keywords: Asian multinationals, outward FDI, Central and Eastern Europe
    JEL: F21 F23
    Date: 2017–10
  20. By: Li Liu; Tim Schmidt-Eisenlohr; Dongxian Guo
    Abstract: This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It uncovers three new findings on tax-motivated transfer mispricing in real goods. First, transfer mispricing increases substantially when taxation of foreign profits changes from a worldwide to a territorial approach in the UK, with multinationals shifting more profits into low-tax jurisdictions. Second, transfer mispricing increases with a firm’s R&D intensity. Third, tax-motivated transfer mispricing is concentrated in countries that are not tax havens and have low-to-medium-level corporate tax rates.
    Keywords: transfer pricing, corporate taxation avoidance, multinational firms
    JEL: F23 H25 H32
    Date: 2017
  21. By: Alexander Patt; Jens Ruhose; Simon Wiederhold; Miguel Flores
    Abstract: We present the first evidence that international emigrant selection on education and earnings materializes through occupational skills. Combining novel data from a representative Mexican task survey with rich individual-level worker data, we find that Mexican migrants to the United States have higher manual skills and lower cognitive skills than non-migrants. Conditional on occupational skills, education and earnings no longer predict migration decisions. Differential labor-market returns to occupational skills explain the observed selection pattern and significantly outperform previously used returns-to-skills measures in predicting migration. Results are persistent over time and hold within narrowly defined regional, sectoral, and occupational labor markets.
    JEL: F22 O15 J61 J24
    Date: 2017
  22. By: Wolfgang Keller; William W. Olney
    Abstract: This paper identifies globalization as a factor behind the rapid increase in executive compensation and inequality over the last few decades. Employing comprehensive data on top executives at major U.S. companies, we show that compensation is higher at more global firms. We find that pay responds not only to firm size and technology but also to exports conditional on other firm characteristics. Export shocks that are not related to the executive’s talent and actions also increase executive compensation, indicating that globalization is influencing compensation through pay-for-non-performance. Furthermore, this effect is asymmetric, with executive compensation increasing due to positive export shocks but not decreasing due to negative shocks. Finally, export shocks primarily affect discretionary forms of compensation of more powerful executives at firms with poor corporate governance, as one would expect if globalization has enhanced rent-capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that both higher returns to top talent and rent-capture are important parts of this story.
    Keywords: inequality, executive compensation, globalization, exports
    JEL: F16 F14 M12 J31
    Date: 2017
  23. By: Achim Hagen (Humboldt-Universität zu Berlin); Jan Schneider (Carl von Ossietzky University Oldenburg)
    Abstract: In spite of scientific agreement on the negative effects of anthropogenic climate change, efforts to find cooperative solutions on the international level have been unsatisfactory so far. Trade sanctions in the form of import tariffs are one principal measure discussed as a means to foster cooperation. Former studies have concluded that import tariffs are an effective mechanism to establish international cooperation. However, most of these studies rely on the assumption that outsiders are not able to retaliate, i.e. to implement import tariffs themselves. In this paper we use combined analytical and numerical analysis to investigate implications of retaliation. We find a threshold effect: below a certain coalition size the effect of retaliation predominates and decreases incentives to be a coalition member. In coalitions above the threshold size the effect of trade sanctions that stabilizes coalitions dominates and enables the formation of larger stable coalitions. Our analysis suggests that only after a sufficiently large climate coalition has already been formed, the threat of trade sanctions might be an effective stick to establish the grand coalition.
    Keywords: international environmental agreements; computable general equilibrium
    JEL: D58 Q54 Q58
    Date: 2017–09
  24. By: Olawole, Kolawole; Adebayo, Temidayo
    Abstract: This paper investigates the relationship among financial openness, trade openness and government size in Nigeria. The study employed the autoregressive distributed lag (ARDL) approach to cointegration to investigate the relationship among the variables. Empirical estimates revealed that financial openness is significantly and negatively related to government size in line with the conventional wisdom that capital mobility may undermine the ability of governments to tax and raise revenue to finance government expenditure which is termed as the efficiency hypothesis. In addition, a positive relationship was reported between trade openness and government size which implies that there is evidence to support compensation hypothesis. The findings of the study suggest that openness has made the country highly vulnerable to external risk and there is need for the government to increase government expenditure and most especially, devote more funds to social welfare expenditure. This will help cushion the negative effects openness and its associated risks has on the country’s citizens.
    Keywords: Openness; Government Size; External Risk
    JEL: F1 H50
    Date: 2017–10–17
  25. By: Sascha Becker; Thiemo Fetzer; Dennis Novy
    Abstract: On 23 June 2016, the British electorate voted to leave the European Union. We analyze vote and turnout shares across 380 local authority areas in the United Kingdom. We find that exposure to the EU in terms of immigration and trade provides relatively little explanatory power for the referendum vote. Instead, we find that fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their education profiles, their historical dependence on manufacturing employment as well as low income and high unemployment. At the much finer level of wards within cities, we find that areas with deprivation in terms of education, income and employment were more likely to vote Leave. Our results indicate that a higher turnout of younger voters, who were more likely to vote Remain, would not have overturned the referendum result.
    Keywords: political economy, voting, referendum, migration, austerity, globalisation, UK, Scotland, EU
    JEL: D72 N44 R23 Z13
    Date: 2017
  26. By: Alessandro Barattieri; Matteo Cacciatore; Francesco Costamagna
    Abstract: Calls for market reforms to help improve economic performance have become a mantra in European policy discussions. In the recent years, fears of a new wave of protectionism reopened the debate on the macroeconomic effects of raising tariff and non-tariff barriers. In this policy paper, we evaluate the consequences of such policy options for economies in a liquidity trap - i.e. at times of major slack and binding constraints on monetary policy easing (such as when the zero lower bound on nominal interest rates is binding). First, we analyse the consequences of protectionism through the lens of a benchmark business cycle model. We show that raising trade barriers has contractionary effects both domestically and abroad. Such detrimental effects are larger in a liquidity trap. We conclude that Europe should not engage in protectionism, even in response to an increase in the level of tariffs imposed by a major trading partner (such as the U.S.). We then review recent trends in product and labor market regulation across the European Union members. Using results from the academic literature, we argue that market reforms in Europe are unlikely to induce significant deflationary effects, suggesting that the inability of monetary policy to deliver interest rate cuts might not be a relevant obstacle to reform. While coordinated structural reforms across the EU members would maximise short- and long-term gains, legal considerations of the implementation of reforms across countries pose challenges to the harmonisation process.
    JEL: F10 F40 E20 L60
    Date: 2017–07
  27. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Peter H. Egger (ETH Zurice, CEPR, CESifo, GEP); Michaela Kesina (ETH Zurich)
    Abstract: This paper studies the determinants of firm-level revenues, as a measure of the performance of firms in China's domestic and export markets. The analysis of the determinants of the aforementioned outcomes calls for a mixed linear-nonlinear econometric approach. The paper proposes specifying a system of equations, which is inspired by Basmann's work and recent theoretical work in international economics and conducts comparative static analyses regarding the role of exogenous shocks to the system to flesh out the relative importance of transmissions across outcomes.
    Keywords: Spatial Econometrics, Spillovers, Panel-Data Econometrics, Nonlinear Systems, Firm- Level Sales, Chinese Firms
    JEL: C23 C31 D24 L65
    Date: 2017–09
  28. By: Benjamin Zissimos
    Abstract: This paper develops a new model of trade policy under dictatorship and democratization. The paper makes two contributions. One is to provide a deeper understanding of the relationship between political institutions and economic efficiency by studying the endogenous interaction between the form of government and trade policy. The paper’s second contribution is to show how a dictatorship can manipulate trade policy to maintain its grip on power in the face of permanent world price shocks, thus opening the door to a re-examination of trade policy re- sponses to technology shocks. The model is used to explain an interesting episode of trade policymaking between 1815 and 1846, during which time Britain substantially liberalized trade while Prussia, on the other side of the grain market, significantly increased protectionism.
    Keywords: commitment problem, efficiency, fiscal capacity, institutions, trade policy
    JEL: D30 D74 F11 F13 P16
    Date: 2017
  29. By: Brian K. Kovak; Lindsay Oldenski; Nicholas Sly
    Abstract: Estimating the causal effect of offshoring on domestic employment is difficult because of the inherent simultaneity of multinational firms' domestic and foreign affiliate employment decisions. In this paper, we resolve this identification problem using variation in Bilateral Tax Treaties (BTTs), which reduce the effective cost of offshore activity by mitigating double taxation. We derive a panel difference-in-differences research design from a standard model of multinational firms, demonstrating the simultaneity problem and showing how to resolve it using BTTs as an instrument for offshore employment. We confirm that new treaty implementation is uncorrelated with existing employment trends, and use Bureau of Economic Analysis data on U.S. multinational firms to measure the domestic employment effects of offshore activity. Overall, we find modest positive effects of offshore activity on domestic employment. A 10 percent BTT-induced increase in affiliate employment drives a 1.8 percent increase in employment at the U.S. parent firm, with smaller effects at the industry and regional levels. Underlying these results is substantial heterogeneity based on offshoring margin and firm organizational structure. For example, increased foreign affiliate activity in vertically oriented multinational firms drives declining employment among non-multinationals in the same industry, and multinational firms opening new affiliates exhibit much smaller domestic employment growth than those expanding existing affiliates. Throughout the analysis, OLS estimates are much larger than the IV estimates, consistent with upward simultaneity bias. Overall, our results indicate that greater offshore activity raises net employment by U.S. firms, albeit with underlying job loss and reallocation of workers.
    JEL: F16 F23 J20 J30
    Date: 2017–10
  30. By: Johannes Boehm (Sciences Po)
    Abstract: Legal institutions affect economic outcomes, but how much? This paper studies how costly supplier contract enforcement shapes the patterns of intermediate input use and quantifies the impact of these distortions on aggregate productivity and welfare. Using the frequency of litigation between US firms to measure the potential for hold-up problems, I find a robust relationship between countries' input-output structure and their quality of legal institutions: in countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. I adapt a Ricardian trade model to the study of intersectoral trade, and show that the variation in intermediate input shares that is explained by contracting frictions is large enough to generate sizeable welfare increases when enforcement institutions are improved.
    Date: 2017
  31. By: L. Lambertini; A. Palestini
    Abstract: We revisit the adoption of voluntary export restraints (VERS) in the differential Cournot game with sticky price and intraindustry trade by Dockner and Haug (1991). The analysis relies on linear and nonlinear feedback strategies, to encompass the special cases considered in Fujiwara (2010) and to show that a VER may arise in correspondence of any free trade equilibrium generated by feedback information such that competition is at least as strong as under open-loop rules. This result can be interpreted in the light of the dynamic formulation of conjectural variations due to Dockner (1992).
    JEL: C73 D43 F12 L13
    Date: 2017–10
  32. By: Lars Sorge; Anne Neumann
    Abstract: This paper analyzes the dynamic relationship between CO2 emissions, energy consumption, GDP, and trade-openness from 1971 to 2013, based on the Environmental Kuznets Curve (EKC) hypothesis for 70 WTO countries. Using recently developed secondgeneration panel data methods, the empirical results support the EKC hypothesis for the high-, middle-, and lower-income panels used. Concerning the energy consumption and economic growth nexus, the causality results support the conversion hypothesis for the high-income panel, whereas the neutrality hypothesis holds for the lower- and middle-income panels. Based on the causality results, trade-openness does not positively impact CO2 emissions, GDP leads CO2 emissions, and trade-openness causes energy consumption within any income panel. The net effect of economic growth, however, could help to stabilize future CO2 emissions within any income panel.
    Keywords: Environmental Kuznets Curve, CO2 emissions, energy consumption, economic growth, trade-openness, Granger causality, second-generation panel data methods
    Date: 2017
  33. By: Sugata Marjit; Lei Yang
    Abstract: Theoretical discussion on compensating mechanisms involving the Pareto criterion that address inequality rather than absolute welfare is non-existent in trade literature. In a simple HOS model we consider tax-transfer policies that keep the pre-trade degree of inequality unchanged between skilled and unskilled workers rather than the absolute income of the losing group. We discuss the problem of existence of such an inequality-neutral tax rate which generates a positive increment in the after tax skilled wage and unskilled wage. Such a mechanism exists and is independent of whether the tax is progressive or proportional. Thus the compensating mechanism that is available in this standard model is stronger than the conventional Pareto criterion.
    Keywords: trade model, wage inequality, compensation mechanism, tax policy
    JEL: F11 J31 D63 H20 H23
    Date: 2017
  34. By: Suchita Srinivasan
    Abstract: Are environmental regulations imposed on downstream firms effective in spurring innovation in clean technologies by upstream firms? We use a novel firm-level dataset of global scope to study whether environmental regulations have percolated up the automotive global value chain, and led to innovation (measured by patenting in abatement technologies) by suppliers at different levels of the chain. Using a Poisson estimation methodology, we find that suppliers worldwide have responded to increasingly stringent emission standards imposed on automobile manufacturers (also known as original equipment manufacturers, or OEMs) by undertaking more innovation in clean abatement technologies; additionally, we find that the smaller the gap between the average environmental regulation suppliers face from the OEMs,and that in the country where the firm is located, the more the firm innovates. In addition, we provide evidence of a spread of these positive effects of regulation on innovation, with suppliers at different upstream levels responding positively to the downstream standards. This paper has important policy implications for the design of environmental policy instruments to induce innovation in clean technologies by firms along the value chain.
    Keywords: Environmental Regulation; Global Value Chains; Patents; Automotive Industry
    JEL: Q55 O31 Q58 F23
    Date: 2017–06–14
  35. By: Finus, Michael; Al Khourdajie, Alaa
    Abstract: We study the co-ordination of environmental policy within an agreement in the context of international trade. In a-n country intra-industry trade model, firms produce a horizontally differentiated good and consumers have a taste for variety. Governments chose strategically an emmission tax and their membership in an international agreement. We show that only a strong taste for variety reduces the competition among governments sufficiently enough to to allow for some form of policy coordination, though full cooperation will never be obtained.
    Date: 2017–02
  36. By: Florian Dorn; Clemens Fuest; Niklas Potrafke
    Abstract: We re-examine the globalisation-income inequality nexus. Globalisation is measured by the KOF globalisation index and sub-indicators for trade, financial, political and social global globalisation. Income inequality is measured by Solt’s pre tax/transfer and the post tax/transfer Gini indices. We use data for 140 countries over the period 1970-2014 and deal with the endogeneity of globalisation measures. Our instrumental variable is predicted openness based on a time-varying gravity model. OLS results show that globalisation and income inequality are positively correlated within the full sample of countries and the sample of emerging and developing countries. The positive relationship is mainly driven by export openness, FDIs and social globalisation. The 2SLS results do not show that overall globalisation or any sub-indicator influences income inequality. The effect, however, is positive within the sample of higher developed countries and driven by transition countries from Eastern Europe and China. Within the sample of the most advanced economies, neither OLS nor 2SLS results show any significant positive relationship between globalisation and inequality.
    JEL: D31 D63 F02 C26 H11 H20
    Date: 2017–07
  37. By: Gerda Dewit (Department of Economics, Finance and Accounting, Maynooth University.); Dermot Leahy (Department of Economics, Finance and Accounting, Maynooth University.); Chris Jones (Aston University, Birmingham, UK); Yama Temouri (.Aston University, Birmingham, UK)
    Abstract: This paper provides theoretical and empirical evidence of the link between the use of tax haven subsidiaries by multinational enterprises (MNEs) and firm performance, as measured by total factor productivity. We find that the use of tax havens has no impact on economic dynamism for a sample of MNEs from across the OECD. Our results have significant policy implications in terms of the role of tax havens in the world economy.
    Date: 2017
  38. By: Fukunari Kimura (Economic Research Institute for ASEAN and East Asia (ERIA)); Lurong Chen (Economic Research Institute for ASEAN and East Asia (ERIA))
    Abstract: Cross-border e-commerce has been a major development trend of international trade and globalization. In the next 5-10 years, the top three fastest growing markets in the world-India, Indonesia, and Malaysia-will all come from Asia. Connectivity is the cornerstone of e-commerce development. E-commerce supporting connectivity aims to ease free information flow, logistics, free cash flow, and seamless links between the virtual and physical parts of e-commerce network. Accordingly, policy efforts include: (a) increasing the supply of public goods to improve connectivity infrastructure in both physical world and cyberspace, (b) establishing rules and regulations to ensure dynamics and competition of online market place, (c) improving connectivity-drived services to generate more value added, (d) prioritizing smartphone economy and Internet financial innovation, and, (e) collaboration in the region-wide e-commerce enabling environment
    Date: 2017–01
  39. By: Christopher Hansman; Jonas Hjort; Gianmarco León; Matthieu Teachout
    Abstract: We study the relationship between exporters' organizational structure and output quality. If only input quantity is observable, theory predicts that vertical integration may be necessary to incentivize suppliers to increase input quality. Using data on suppliers' behavior, supplier ownership, supply transactions, and manufacturers' output by quality grade and exports from the Peruvian fishmeal industry, we show the following. After integrating with the plant being supplied and losing access to alternative pay-per-kilo buyers, suppliers take more quality-increasing and less quantity-increasing actions. Integration consequently causally increases output quality, and manufacturers integrate suppliers when facing high relative demand for high quality grades.
    JEL: D2 O1
    Date: 2017–10
  40. By: Tamas Gerocs (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This paper makes a critical assessment of Indian companies’ internationalization experience. It introduces a new theoretical framework in order to go beyond classical notion based on western companies’ global aspirations. Besides the theoretical modifications the paper provides an empirical collection about those successful Indian internationalization projects that sought to enter the European market. The question to be answered here is whether Indian firms are able to compete out dominant western companies in an increasingly multipolar world economy in the future. By applying the modified method on the question of internationalization from developing companies’ point of view, the aim of the paper is to detect future world economic trends to which Indian companies will need to accommodate themselves.
    Keywords: FDI, Indian multinationals, multipolar world-system, investment development path, developing countries
    JEL: F02 O25 O53 P45 P48
    Date: 2017–10
  41. By: Matteo Fiorini; Bernard Hoekman
    Abstract: This paper empirically investigates the role of governance institutions in shaping the economic impact of services trade reform. The analysis focuses on the effects of services trade policy on the productivity of manufacturing sectors that use services as intermediate inputs. We find that these effects depend on the quality of governance institutions in the country implementing trade and investment reform. The moderating effects of horizontal (cross-cutting) and services sector-specific dimensions of economic governance institutions are found to differ. For some services activities market access opening can substitute for weak regulation/governance; in others bad regulatory governance is a binding constraint and needs to be addressed directly for market opening to have the greatest benefits. Our empirical findings suggest these complementarity and substitution relationships may be associated with the types of market failure that arise in different services sectors and the effectiveness of regulatory regimes in addressing them. We also find that positive effects of services trade and investment reforms are higher in EU member states.
    JEL: L8 O43
    Date: 2017–07
  42. By: Hans Peter Grüner
    Abstract: This paper develops a politico-economic model of the joint dynamics of economic interaction and political integration. Based on the theoretical model, we derive several hypotheses on how to explain the recently observable decline in popular support for European integration. These hypotheses are matched with data from various sources in order to scrutinize their empirical validity. The paper proposes a five pillar approach to prevent a counterproductive process of disintegration. Accordingly, (i) common policies must better fit voter preferences, reduce inequality and unemployment, (ii) policy processes must become more efficient, (iii) institutions must enable voters to properly attribute policy outcomes to political actors, (iv) policies should foster cross border political debates, and (v) any further deepening or enlargement of the Union should be based on European wide popular support. We discuss a series of specific policy measures that help to achieve these goals.
    JEL: D62 D7 F02 F15
    Date: 2017–07
  43. By: Amelie F. Constant
    Abstract: The health status of people is a precious commodity and central to economic, socio-political, and environmental dimensions of any country. Yet it is often the missing statistic in all general statistics, demographics, and presentations about the portrait of immigrants and natives. In this paper we are concerned with international migration and health outcomes in the host countries. Through a general literature review and examination of specific immigration countries, we provide insights into the Healthy Immigrant Paradox and the health assimilation of immigrants as we also elucidate selection and measurement challenges. While health is part of human capital, health assimilation is the mirror image of earnings assimilation. Namely, immigrants arrive with better health compared to natives and their health deteriorates with longer residence in the host country, converging to the health of natives or becoming even worse. A deeper understanding of immigrant health trajectories, and disparities with natives and other immigrants is of great value to societies and policymakers, who can design appropriate policy frameworks that address public health challenges, and prevent the health deterioration of immigrants.
    Keywords: health status, healthy immigrant paradox, international migration, assimilation, age-cohort-period effects, selection, aging
    JEL: I00 I10 I12 I14 I18 J00 F22 J11 J14 J15 J24 J61 O15
    Date: 2017
  44. By: Glyn Wittwer
    Abstract: The objective of this study is to assess the suitability of Commodity Flow Survey (CFS) data released by the US Census Bureau as a check on the estimates of inter-regional trade generated in creating the USAGE-TERM master database. A close inspection of the Census Bureau's CFS data indicate that they record movements to and from transport nodes. In some cases, transport nodes may align with production origins and final use destinations. In other cases, nodes appear to be intermediate points rather than origins or final destinations. This implies that CFS data are often incompatible with the trade flows in a CGE database. Merchandise, that is primary and manufacturing commodities, account for no more than 15% of GDP in the U.S. economy. Therefore, even comprehensive merchandise trade flow data would have limited use in a CGE database. The usefulness of the CFS data is diminished further by its concentration on bulky goods, which account for a small fraction of total trade flows. Bulky trade flows may account for a substantial proportion of the volume of trade but make a small contribution to total economic activity. Mining products excluding oil and gas account for 50.9% of the recorded weight in the survey, but just 3.9% of the value of trades – and only 0.3% of GDP. The CFS data might be useful for examining transport logistics but are of little use in CGE database preparation. There is no evidence that the CFS data supersedes the Horridge gravity method of allocating inter-regional trades. However, CFS data point to the desirability of noting the difference between transport in the Mississippi basin and elsewhere. The basin relies heavily on water transport for moving agricultural, mining and fuel products.
    Keywords: Regional CGE modelling, inter-regional trades
    JEL: R11 R13 R15 C68
    Date: 2017–08

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.