nep-int New Economics Papers
on International Trade
Issue of 2018‒01‒29
38 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Measuring Global Value Chains By Robert C. Johnson
  2. EXPORT AND PRODUCTIVITY IN GLOBAL VALUE CHAINS: COMPARATIVE EVIDENCE FROM LATVIA AND ESTONIA By Konstantins Benkovskis; Jaan Masso; Oleg Tkacevs; Priit Vahter; Naomitsu Yashiro
  3. A Matching Theory of Global Supply Chains By SUGITA, Yoichi
  4. The Effects of Entry in Oligopolistic Trade with Bargained Input Prices By Naylor, Robin; Soegaard, Christian Author-workplace-Name University of Warwick
  5. Geography, Income, and Trade in the 21st Century By Dan Liu; Christopher M. Meissner
  6. Recent Developments in Trade, Investment and Finance of China’s Belt and Road By Alicia Garcia-Herrero; Jianwei Xu
  7. The protectionist's progress By Dadush, Uri
  8. Untangling Real Gravity By Franc Klaassen; Rutger Teulings
  9. Reduction of Regulatory Restrictiveness in Services Sectors and Its Impact on FDI Inflows By Kim, Jong Duk; Choi, Boyoung; Cho, Moonhee; Chung, Min-chirl
  10. Investment Responses to Trade Liberalization: Evidence from U.S. Industries and Plants By Justin R. Pierce; Peter K. Schott
  11. Demographics and the Evolution of Global Imbalances By Sposi, Michael J.
  12. Labor Market Imperfections, Markups and Productivity in Multinationals and Exporters By Dobbelaere, Sabien; Kiyota, Kozo
  13. US Exports and Employment By Robert C. Feenstra; Hong Ma; Yuan Xu
  14. Impacts of Institutions on the Performances of Enterprises in Vietnam By Thi Mai Phuong, Chu
  15. Firm heterogeneity and aggregate business services exports: micro evidence from Belgium, France, Germany and Spain By Andrea Ariu; Elena Biewen; Sven Blank; Guillaume Gaulier; María Jesús González; Philipp Meinen; Daniel Mirza; César Martín Machuca; Patry Tello
  16. Intrinsic Openness and Endogenous Institutional Quality By Yang Jiao; Shang-Jin Wei
  17. R&D and Innovation across Global Value Chains: Insights for EU Territorial Innovation Policy By Mafini Dosso; Lesley Potters; Alexander Tuebke
  18. Do emigrants self-select along cultural traits? Evidence from the MENA countries By Docquier, Frédéric; Tansel, Aysit; Turati, Riccardo
  19. Export Behavior of Turkish Manufacturing Firms Under Crises By Aslihan Atabek Demirhan; Hakan Ercan
  20. Estimating the Scale of Profit Shifting and Tax Revenue Losses Related to Foreign Direct Investment By Petr Jansky; Miroslav Palansky
  21. Trade in Environmental Goods: Empirical Exploration of Direct and Indirect Effects on Pollution by Country’s Trade Status By Natalia Zugravu-Soilita
  22. The Minimum Wage, Exports, and Firm Performance: Evidence from Indonesia By Bin Ni; Kyosuke Kurita
  23. Trade Balance Dynamics and Exchange Rates: In Search of the J-Curve Using a Structural Gravity Approach By Badinger, Harald; Fichet de Clairfontaine, Aurélien
  24. Urn model for products' shares in international trade By Matthieu Barbier; D. -S. Lee
  25. External Flows and Inclusive Human Development in Sub-Saharan Africa By Simplice Asongu; Ivo Leke
  26. Going beyond analysis of internal data to support customs modernization: A case study in Gabon By Joel Cariolle; Cyril Chalendard; Anne-Marie Geourjon; Bertrand Laporte
  27. Trade Balance Dynamics and Exchange Rates: In Search of the J-Curve Using a Structural Gravity Approach By Harald Badinger; Aurelien Fichét de Clairfontaine
  28. How Immigrants Helped EU Labor Markets to Adjust during the Great Recession By Martin Kahanec
  29. Aggregating from Micro to Macro Patterns of Trade By Stephen J. Redding; David E. Weinstein
  30. Modeling Fluctuations in the Global Demand for Commodities By Lutz Kilian; Xiaoqing Zhou
  31. Currency unions and heterogeneous trade effects: the case of the latin monetary union By Jacopo Timini
  32. Does Informal Employment Respond to Growth Opportunities? Trade-Based Evidence from Bangladesh By Prodyumna Goutam; Italo A. Gutierrez; Krishna B. Kumar; Shanthi Nataraj
  33. Tariff Overhang and Aid: Theory and Empirics By Oliver Lorz; Susanna Thede
  34. Trade, Productivity and Welfare when Monopolistic Competition and Oligopoly Coexist By Kenji Fujiwara
  35. The Estimation and Interpretation of Coefficients in Panel Gravity Models of Migration By Michael P. Cameron; Jacques Poot
  36. Who Got the Brexit Blues? Using a Quasi-Experiment to Show the Effect of Brexit on Subjective Wellbeing in the UK By Powdthavee, Nattavudh; Plagnol, Anke C.; Frijters, Paul; Clark, Andrew E.
  37. Accounting for the Growth of Exporters By Rahul Giri; Junjie Xia; Lukasz Drozd
  38. Trends in Globalization of Select Asian Countries By Mishra, SK

  1. By: Robert C. Johnson
    Abstract: Recent decades have seen the emergence of global value chains (GVCs), in which production stages for individual goods are broken apart and scattered across countries. Stimulated by these developments, there has been rapid progress in data and methods for measuring GVC linkages. The macro-approach to measuring GVCs connects national input-output tables across borders using bilateral trade data to construct global input-output tables. These tables have been applied to measure trade in value added, the length of and location of producers in GVCs, and price linkages across countries. The micro-approach uses firm-level data to document firms' input sourcing decisions, how import and export participation are linked, and how multinational firms organize their production networks. In this review, I evaluate progress on these two tracks, highlighting points of contact between them and areas that demand further work. I argue that further convergence between them can strengthen both, yielding a more complete empirical portrait of GVCs.
    JEL: F1
    Date: 2017–11
  2. By: Konstantins Benkovskis; Jaan Masso; Oleg Tkacevs; Priit Vahter; Naomitsu Yashiro
    Abstract: This paper investigates the effect of export entry on productivity, employment and wages of Latvian and Estonian firms in the context of global value chain (GVC). Like in many countries, exporting firms in Latvia and Estonia are more productive, larger, pay higher wages and are more capital intensive than non-exporting firms. While this is partly because firms that are originally more productive and have better performances are more likely to enter export, Latvian and Estonian firms also realise more than 23% and 14% higher labour productivity level as the result of export entry. Export entry also increases employment and average wages. Gains in productivity and employment are particularly large when firms enter exports that are related to participation in knowledge-intensive activities found in the upstream of GVC. For instance, Latvian firms that start exporting intermediate goods or non-transport services (which include knowledge intensive services) enjoy significantly higher productivity gains than those starting to export final goods or transport services. These findings underscore the importance of innovation policies that strengthen firms’ capabilities to supply highly differentiated knowledge-intensive goods and services to GVC.
    Keywords: productivity, global value chain, export, Latvia, Estonia
    JEL: F12 F14 O19 O57
    Date: 2018
  3. By: SUGITA, Yoichi
    Abstract: This paper develops a simple general equilibrium model of global supply chains (GSCs) that jointly addresses three key decisions of firms forming GSCs, namely selection (whether to form a GSC), location (where to find GSC partners), and matching (with which firms to form a GSC). The model develops a Becker type assortative matching model of final producers and suppliers both of which are heterogeneous in capability (productivity/quality) of their tasks, and integrates it with a Melitz type model of selection and a Ricardian comparative advantage model of location. The model presents a new mechanism of gains from trade associated with firm heterogeneity. Namely, trade liberalization causes rematching of firms toward positive assortative matching at the world level as a recent empirical study on exporter-importer matching data observes.
    Keywords: Global supply chains, firm heterogeneity, two-sided heterogeneity, matching, trade in intermediate goods, quality differentiation
    JEL: F12
    Date: 2017–12
  4. By: Naylor, Robin (University of Warwick); Soegaard, Christian Author-workplace-Name University of Warwick
    Abstract: Firms which face the threat of import competition from foreign rivals are conventionally seen as favouring import protection. We show that this is not necessarily the case when domestic firms' input prices are determined endogenously. In a framework where the input price is determined through bargaining with an (upstream) input supplier, the relationship between a domestic (downstream) firm's profits and the number of foreign competitors depends on trade costs. If trade costs are sufficiently high, then an increase in the number of foreign entrants can raise the profits of a downstream firm in a home market characterised by Cournot competition. The intuition for this result is that increased product market competition through the entry of foreign firms is mirrored by profit-enhancing moderation of the bargained input price. We examine a number of tariff and non-tariff barriers to international trade and identify conditions under which import-competing firms will favour the removal of barriers to foreign competition.
    Keywords: Oligopoly ; international trade ; profits ; entry ; vertical markets
    JEL: F13 F16 L13
    Date: 2018
  5. By: Dan Liu; Christopher M. Meissner
    Abstract: We investigate the relationship between GDP per capita, trade costs, demand, and income inequality between 1996 and 2011. Specifically we apply the aggregate AIDS-based gravity model as developed in Fajgelbaum and Khandelwal (2016) to a panel of 40 countries to generate a new measure of market potential. We then relate this measure of market potential to country level GDP per capita finding a significant positive relationship which performs better than CES-based measures of market potential. The AIDS model allows for non-homotheticities in demand and the possibility that nations produce goods with higher or lower income elasticities so that income inequality and GDP per capita matter for the direction of trade. CES-based market potential measures are typically only a function of overall income and trade costs, but in AIDS relative incomes and average incomes matter. We also go beyond this partial equilibrium relationship and explore the welfare effects of a unilateral decline in international trade costs. A 10% decline in import prices induces an average rise in welfare of 2% for importing countries. This effect is larger for smaller countries and depends in an interesting way on the income elasticity of demand for source and destination products.
    JEL: F14 F15
    Date: 2017–12
  6. By: Alicia Garcia-Herrero (Chief Economist for Asia Pacific, NATIXIS; Department of Economics , The Hong Kong University of Science and Technology; Institute of Emerging Market Studies, The Hong Kong University of Science and Technology); Jianwei Xu (Beijing Normal University)
    Abstract: This paper makes a mid-term assessment for China’s Belt and Road Initiative (BRI) from the perspective of trade, investment and finance, respectively. We will discuss the economic progress of the Belt and Road Initiative from the trade, investment and financial perspectives, respectively. Trade is most accessible field for China to breakthrough as it can be instantly affected by short-term policies such as removing tariff or non-tariff barriers. Our findings also confirm the rapid progress in trade, though the development was not equally distributed in the area, with the ASEAN, Middle East, South Asia and Russia constitute the largest trade share with China. Our analysis on the BRI’s spillover effect on the US and the EU reveals that the BRI plan poses actually very little substitution effect but under some scenarios even positive impact on the EU-China trade. We especially assess the impacts on the EU, which sits at the other end of the BRI area, and find that better connectedness within the BRI area will bring higher economic benefits to the EU than free trade agreements.
    Date: 2018–01
  7. By: Dadush, Uri
    Abstract: President Trump's actions on trade have not quite matched his rhetoric, but the worst may be to come. Though the political opposition to his protectionism is formidable, so are his conviction and determination and he possesses a wide array of instruments to pursue his goals. The trade doctrine he has espoused makes for trade policy instability both at home and abroad. It may lead to a large deterioration in the operating environment of international business. America's trade-dependent industries and her trading partners should not wait. They need to anticipate and deter the administration's actions. Policies must be adjusted to minimize the damage to world trade.
    Keywords: trade,protectionism,mercantilism,trade remedies,geopolitics
    JEL: F14
    Date: 2017
  8. By: Franc Klaassen (University of Amsterdam; Tinbergen Institute); Rutger Teulings (University of Amsterdam; Tinbergen Institute)
    Abstract: We derive a real gravity equation and gain several new insights that were hidden in the nominal specification used so far. Most importantly, the real effective exchange rate (REER) of the exporter and, via the importer's terms of trade, also the importer's REER matter, and we can identify the elasticity of substitution. We estimate real gravity for 18 OECD countries. Therefore, we extend the untangling normalization method from an “it” to an “ijt” panel data model and use it to exploit all variables proposed by theory, despite a broad set of fixed effects (FE). We find that both REERs are important and estimate an elasticity of substitution of 1.5. If we assume homogeneous parameters, as is common, the remaining unexplained exporter-time and importer-time deviations are still substantial, relaxing this assumption improves this. We now explain 64 and 70% of the exporter-time and importer-time deviations, respectively, and thus the majority of the exporter and importer multilateral resistances. Untangling normalization helps to get a better view of what is still unexplained by theory.
    Keywords: real gravity equation; exchange rate; multilateral trade resistance; untangling normalization
    JEL: C18 F10 F14
    Date: 2017–12–29
  9. By: Kim, Jong Duk (Korea Institute for International Economic Policy); Choi, Boyoung (Korea Institute for International Economic Policy); Cho, Moonhee (Korea Institute for International Economic Policy); Chung, Min-chirl (Korea Institute for International Economic Policy)
    Abstract: The reduction of regulatory restrictiveness in services sectors in Korea using recent free trade agreements in effect and its impact on FDI inflows are investigated. The research outcomes provide three main findings as follows. First, FDI inflows of Korea closely follow the trend of global FDI flows. FDI inflows to Korea from developed economies have appeared dominant; FDI inflows from the U.S., Japan and European economies account for the major share. The increase of FDI inflows from China is significant. Moreover, the FDI inflow shares of capital-intensive industries such as electronic, chemical, and machinery in manufacturing and financial, distribution, and business in services are also large. The fact that FDI inflows in services have become two times larger than those in manufacturing since early 2000's is noteworthy. In the meantime, while FDI flows in forms of M&A in most developed economies, M&As as a form of FDI are still less prevalent in Korea. Second, Korea's services trade restrictiveness indices provided by the OECD are updated and recalculated reflecting the FTAs recently put in force. Further liberalization through recent FTAs in force is identified in legal, accounting and telecommunications services. Third, the impact of services liberalization on FDI inflows in Korea is analyzed. As suggested in theoretical predictions, further services liberalization through FTAs plays a positive role in FDI inflows in Korea. Such outcomes are derived not only in services sectors but in manufacturing sectors as well.
    Keywords: Regulatory; Restrictiveness; Services; FDI
    Date: 2018–01–12
  10. By: Justin R. Pierce; Peter K. Schott
    Abstract: This paper examines the effect of a change in U.S. trade policy on the domestic investment of U.S. manufacturers. Using a difference-in-differences identification strategy, we find that industries more exposed to reductions in import tariff uncertainty exhibit relative declines in investment after the change in trade policy. Within industries, we find that this relationship is concentrated among establishments with low initial levels of labor productivity, capital intensity and skill intensity. Plants with high initial levels of skill intensity, by contrast, exhibit relative increases in investment with exposure. We also find evidence that establishments' investment activity is smoother following the policy change.
    JEL: E22 F1 F13 F14 F4
    Date: 2017–11
  11. By: Sposi, Michael J. (Federal Reserve Bank of Dallas)
    Abstract: The working age share of the population has evolved, and will continue to evolve, asymmetrically across countries. I develop a dynamic, multicountry, Ricardian trade model with endogenous labor supply to quantify how these asymmetries systematically affect the pattern of trade imbalances across 28 countries from 1970-2014. Changes in both domestic and foreign working age shares impact a country's net exports directly through the demand for net saving and indirectly through relative labor supply and population growth. Counterfactually removing demographic-induced changes to saving unveils a strong negative contemporaneous relationship between net exports and productivity growth. Demographics, thus, alleviate the allocation puzzle, and do so to a greater degree than investment distortions. Neither labor market distortions nor trade distortions systematically reconcile the puzzle.
    JEL: F11 F21 J11
    Date: 2017–12–01
  12. By: Dobbelaere, Sabien (Vrije Universiteit Amsterdam); Kiyota, Kozo (Keio University)
    Abstract: This paper examines the links between the internationalization mode of firms and market imperfections in product and labor markets. We develop a framework for modelling heterogeneity across firms in terms of (i) product market power (price-cost markups), (ii) labor market imperfections (workers' bargaining power during worker-firm negotiations or firm's degree of wage-setting power) and (iii) revenue productivity. We apply this framework to analyze whether the pricing behavior of firms in product and labor markets differs across firms that engage in different forms of internationalization. Engagement in international activities is found to matter for determining not only the type of imperfections in product and labor markets but also the degree of imperfections. Clear differences in behavior between firms that serve the foreign market either through exporting or through FDI are observed. Being an exporter introduces allocative inefficiencies in product as well as labor markets as we find export status to be positively correlated with both product market power (markups) and market power consolidated on the labor supply side (workers' bargaining power). But exporting firms where search frictions are inducing wages to vary with revenue are less able to exploit wage-setting power. Firms with foreign subsidiaries, on the other hand, seem to reduce price distortions in product and labor markets. In addition, we observe heterogeneous returns to being an exporter/MNE within an industry and also discern cross-industry differences.
    Keywords: rent sharing, monopsony, price-cost mark-ups, productivity, exporting, multinational firms, panel data
    JEL: C23 D24 F14 F16 J50 L13
    Date: 2017–12
  13. By: Robert C. Feenstra; Hong Ma; Yuan Xu
    Abstract: We examine the employment responses to import competition from China and to global export expansion from the United States, both of which have been expanding strongly during the past decades. We find that although Chinese imports reduce jobs, at both the industry level and the local commuting zone level, the global export expansion of US products also creates a considerable number of jobs. On balance over the entire 1991-2007 period, job gains due to changes in US global exports were slightly less than job losses due to Chinese imports. Using data at both the industry level and the commuting zone level, we find a net loss of around 0.2-0.3 million jobs. When we extend the analysis to 1991-2011, we find the net job effect of import and export exposure is roughly balanced at the commuting zone level.
    JEL: F14 F16 J23 R23
    Date: 2017–11
  14. By: Thi Mai Phuong, Chu
    Abstract: SECO Working Paper 23/2017 by Chu Thi Mai Phuong
    Abstract: This paper investigates the impacts of institutions on the performances of enterprises in Vietnam. The results obtained from the quantitative research method show that the criteria on institutions do not affect the performances of enterprises in Vietnam; while some criteria have positive impacts, others negatively affect them. Moreover, the improvement in the quality of economic institutions will lead to the differences in performance among different types of enterprises. More specifically, improving economic institutional quality will result in higher increases in the revenues and added values of state-owned enterprises than those of FDI enterprises. Similarly, the improvement also leads to the higher increase in private enterprises' revenues but lower increases in their added values and added value ratios compared to those of FDI enterprises. However, there is no difference in the impact of institutional quality improvement on the before-tax earnings of different types of enterprises. Based on the research's result, the paper proposes some suggestions to improve the quality of economic institutions, and thus improve enterprises' performances and success, on all three aspects including "rules", "players" and "implementation procedures".
    Date: 2018–01–19
  15. By: Andrea Ariu (University of Geneva, Switzerland, Georgetown university, USA, and Crenos, Italy); Elena Biewen (Deutsche Bundesbank); Sven Blank (Deutsche Bundesbank); Guillaume Gaulier (Banque de France and CEPII); María Jesús González (Banco de España); Philipp Meinen (Deutsche Bundesbank); Daniel Mirza (University François Rabelais de Tours, LEO-CNRS (Orleans), Banque de France and CEPII); César Martín Machuca (Banco de España); Patry Tello (Banco de España)
    Abstract: This paper uses detailed micro data on service exports at the firm-destination-service level to analyse the role of firm heterogeneity in shaping aggregate service exports in Belgium, France, Germany and Spain from 2003 to 2007. We decompose the level and the growth of aggregate service exports into different trade margins paying special attention to firm heterogeneity within countries. We find that the weak export growth of France is at least partly due to poor performance by small exporters. By contrast, small exporters are the most dynamic contributors to the aggregate exports of Belgium, Germany and Spain. Our results highlight the importance of firm heterogeneity in understanding aggregate export growth.
    Keywords: service exports, firm heterogeneity, micro data panel
    JEL: F14
    Date: 2017–10
  16. By: Yang Jiao; Shang-Jin Wei
    Abstract: Quality of public institutions has been recognized as a crucial determinant of macroeconomic outcomes. We propose that a country's intrinsic level of openness (due to population size, geography, or exogenous trade opportunities) affects its incentives in investing in better institutions. We present a simple theory and extensive empirical evidence validating the role of intrinsic openness in determining governance quality. This suggests an indirect but important channel for globalization to improve welfare by raising the quality of governance.
    JEL: F1 O1
    Date: 2017–11
  17. By: Mafini Dosso (European Commission - JRC); Lesley Potters (European Commission - JRC); Alexander Tuebke (European Commission - JRC)
    Abstract: * Firms organise innovation activities across a wider range of geographically dispersed and specialized units, as compared to previous decades. Moreover corporate innovation processes are broken up into ever finer stages and tasks at the global scale. * The global dispersion of R&D and innovation activities occurs at a higher pace and goes hand in hand with a stronger regional polarization. Yet, corporate R&D remains a domestic activity, although functional and industry-specific patterns can be observed. * The increased internationalisation of R&D and innovation activities does not imply the hollowing-out of domestic ones. Foreign innovation activities may actually support domestic increases in innovation. * The internal and external connections of national and regional systems matter for their innovation performance. The quality of the regional learning and innovation systems is important to attract "relevant activities or segments" of the GVC. On the other hand, better connecting regions to the global innovation networks is important for local growth and employment. * The extent to which firms co-locate production and innovation activities depends on industry, product and process-specificities. * Evidence is needed on how R&D and innovation activities are sliced and diced across GVCs, on how these global corporate dynamics interact with national and regional innovation systems and on how they impact on local growth and employment.
    Keywords: R&D, Innovation Policy, Industrial Policy, Innovation.
    Date: 2017–09
  18. By: Docquier, Frédéric; Tansel, Aysit; Turati, Riccardo
    Abstract: This paper empirically investigates whether emigrants from MENA countries self-select on cultural traits such as religiosity and gender-egalitarian attitudes. To do so, we use Gallup World Poll data on individual opinions and beliefs, migration aspirations, short-run migration plans, and preferred destination choices. We find that individuals who intend to emigrate to OECD, high-income countries exhibit significantly lower levels of religiosity than the rest of the population. They also share more gender-egalitarian views, although the effect only holds among the young (aged 15 to 30), among single women, and in countries with a Sunni minority. For countries mostly affected by Arab Spring, since 2011 the degree of cultural selection has decreased. Nevertheless, the aggregate effects of cultural selection should not be overestimated. Overall, self-selection along cultural traits has limited (albeit non negligible) effects on the average characteristics of the population left behind, and on the cultural distance between natives and immigrants in the OECD countries.
    Keywords: International migration, self-selection, cultural traits, gender-egalitarian attitudes, religiosity, MENA region.
    JEL: F22 J61 O15 Z10
    Date: 2017–11–17
  19. By: Aslihan Atabek Demirhan; Hakan Ercan
    Abstract: Turkey experienced three economic crises in recent decades that provides natural experiment environment for researchers. In this paper, we studied the impact of recent three different economic crisis on export behavior of Turkish manufacturing firms using firm level annual panel data for 1990-2014 period. By investigating the impact of crisis on both the decision to become an exporter and volume of exports, export behavior of Turkish manufacturing firms under crisis is diagnosed. Estimation results reveal differentiated impact of different types of crisis on export behavior of Turkish manufacturing firms. According to the results, export boom observed with 1994 crisis was mainly due to the increase in extensive margin. Devaluated currency together with shrinking domestic demand in 1994 crisis lead to an increase in export propensity of the firms. Although sharp currency devaluation and domestic demand contraction supported incumbent exporters to increase their export volume, the accompanied credit crunch in 2001 crisis hindered entrance of new firms into export markets. Significant international trade collapse with 2008 global financial crisis caused declines in both export propensity and export volume of the Turkish manufacturing firms. These findings have implications on both what types of export promotion and incentives should be provided (or not) and to whom this assistance should be provided for dissimilar shocks in an emerging market economy like Turkey.
    Keywords: Export behavior, Crisis, Firm-level data, Turkey, Logit model, Selectivity correction
    JEL: F14 L25 C23 C25
    Date: 2018
  20. By: Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Miroslav Palansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: Governments’ revenues are lower when multinational enterprises avoid paying corporate income tax by shifting their profits to tax havens. In this paper, we ask which countries’ tax revenues are affected most by this tax avoidance and how much. To estimate the scale of profit shifting, we start by observing that the higher is the share of foreign direct investment from tax havens, the lower is the reported rate of return on this investment. Similarly to the 2015 World Investment Report of the United Nations Conference on Trade and Development, we assume that the reported rate of return is lower due to profit shifting. Unlike the report, however, we provide illustrative country-level estimates of profit shifting related to foreign direct investment which enable us to study the distributional impact of international corporate tax abuse. We find that, on average, higher-income countries lose least and lower-income countries lose most corporate tax revenue relative to their GDP. On the basis of these estimates, we conclude that profit shifting thus deepens the existing income inequalities and the differences in government revenues between countries. Furthermore, we compare our results with three other recent studies that use different methodologies to derive country-level estimates of tax revenue losses that can be related to profit shifting. In a first such comparison made, we find that every study identifies differences across income groups, but the nature of these differences varies across the four studies.
    Keywords: foreign direct investment; corporate income tax; tax avoidance; base erosion; profit shifting; inequality
    JEL: F21 F23 H25
    Date: 2017–11
  21. By: Natalia Zugravu-Soilita (University of Versailles Saint-Quentin-en-Yvelines)
    Abstract: Based on panel data covering 114 countries in the world, this study investigates the direct, indirect and total effects of trade flows in environmental goods (EG) on total CO2 and SO2 emissions. Our system-GMM estimations reveal positive direct scale – [between-industry] composition effects prevailing on the negative direct technique – [within-industry] composition effects (if any), as well as compensating the significant indirect technique effects channelled by the stringency of environmental regulations and per capita income. If the net importers of EGs (namely from the APEC54 and WTO26 lists) are recurrently found to face increased pollution (in particular CO2 emissions) due to direct scale-composition effects of trade in EGs, the EGs’ net exporters are more likely to see their local pollution to decrease, in particular thanks to income-induced effects. We show that the direct, indirect and total effects of trade in EGs depend on the country’s net trade status, the EGs’ classification and the pollutant considered.
    Keywords: Environmental Goods, Environmental Policy, Net Exporter, Net Importer, Pollution, Trade
    JEL: F13 F14 F18 Q53 Q56 Q58
    Date: 2017–12
  22. By: Bin Ni (Faculty of Business Administration, Toyo University); Kyosuke Kurita (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines the interrelationship between changes in the provincial minimum wage, firms' export behavior, and firms' performance in Indonesia. In this regard, we apply two-stage least squares regression analysis to detailed firm-level data of manufacturing enterprises between 2002 and 2014. We find that an increase in the minimum wage is associated with decreases in a firm's employment rate, its probability of exporting, and its overall performance in terms of productivity and markup. We also use the 2012 minimum wage reform in Indonesia to conduct a combined propensity score matching and difference-in-difference analysis to mitigate the potential endogeneity of minimum wage regulation. Our findings are generally robust to alternative estimation methods. Moreover, the findings suggest that Indonesian exports and the country's comparative advantage in international markets are not negligibly affected by higher labor costs through minimum wage growth.
    Keywords: minimum wage, firm performance, Indonesia, difference-in-difference
    JEL: F14 F16 L25 J88
    Date: 2018–01
  23. By: Badinger, Harald; Fichet de Clairfontaine, Aurélien
    Abstract: This paper uses a structural gravity approach, specifying currency movements as trade cost component to derive an empirical trade balance model, which incorporates multilateral resistance terms and accounts for the cross-country variation in the exchange rate pass-through into import and export prices. The model is estimated using quarterly bilateral trade flows between 47 countries over the period 2010Q1-2017Q2, disaggregated into 97 commodity groups. Our results support the existence of an ``aggregate'' J-curve, pooled over commodity groups; at the same time they point to considerable heterogeneity in the trade balance dynamics across industries below the surface of aggregate data.
    Keywords: exchange rate variations; gravity; J-curve; trade balance
    Date: 2018–01
  24. By: Matthieu Barbier; D. -S. Lee
    Abstract: International trade fluxes evolve as countries revise their portfolios of trade products towards economic development. Accordingly products' shares in international trade vary with time, reflecting the transfer of capital between distinct industrial sectors. Here we analyze the share of hundreds of product categories in world trade for four decades and find a scaling law obeyed by the annual variation of product share, which informs us of how capital flows and interacts over the product space. A model of stochastic transfer of capital between products based on the observed scaling relation is proposed and shown to reproduce exactly the empirical share distribution. The model allows analytic solutions as well as numerical simulations, which predict a pseudo-condensation of capital onto few product categories and when it will occur. At the individual level, our model finds certain products unpredictable, the excess or deficient growth of which with respect to the model prediction is shown to be correlated with the nature of goods.
    Date: 2017–12
  25. By: Simplice Asongu (Yaoundé/Cameroun); Ivo Leke (University of Saskatchewan, Canada)
    Abstract: The study assesses how external flows influence inclusive human development in a panel of 48 countries in Sub-Saharan Africa for the period 2000-2012. The empirical evidence is based on Tobit regressions and Generalised Method of Moments. The findings from both estimation techniques reveal that remittances and FDI increase inclusive development whereas foreign aid has the opposite effect. The results suggest some positive and negative impacts of interest for further analysis. First, remittances are negatively associated with: (i) Middle income countries compared to Low income countries where the effect is not significant; (ii) French Civil law countries compared to English Common law countries where the effect is positive and (iii) Resource-rich countries compared to their Resource-poor counterparts where the effect is positive. Second, foreign aid is more negatively linked to Low income, French Civil law, Islam-dominated, Un-landlocked, Resource-rich and Politically-unstable countries. Third, FDI is positively associated with: (i) Low income, French Civil law and Landlocked countries compared to respectively Middle income, English Common law and Un-landlocked countries where the effect is insignificant and (ii) Politically-stable countries compared to their Politically-unstable counterparts where the effect is negative.
    Keywords: Foreign investment; Remittances; Foreign aid; Inclusive development; Africa
    JEL: F21 F24 F35 I30 O55
    Date: 2017–01
  26. By: Joel Cariolle (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique, FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Cyril Chalendard (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Anne-Marie Geourjon (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique, FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Bertrand Laporte (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Customs administrations in developing countries increasingly use risk-based techniques relying on data mining and statistical scoring. By demonstrating the value of using data analysis techniques to orient frontline controls so as to facilitate legal trade and combat fraud more effectively, these projects have helped promote a cultural change in these organizations. However, these risk management techniques may prove to be ineffective in assessing fraud risks based only on frauds detected by customs inspectors. In a context of moral hazard and low-performing customs administration, one way to address this weakness is to expand the approach by relying on other sources of information such as discrepancies in bilateral trade statistics. Several studies use these statistical discrepancies (mirror data) to identify fraudulent declarations and estimate their effects. By comparing Gabon's import customs data with discrepancies in its bilateral trade data, this paper stresses the usefulness of simultaneously analyzing customs fraud records and mirror trade statistics data. Such an analysis helps quantifying undetected fraud and therefore constitutes a valuable tool to target ex post audits. Then, based on the combination of these databases, the paper defines indicators to monitor the performance of customs controls.
    Keywords: Customs risk analysis, Performance of customs authorities, Customs fraud, Tax evasion, Administrative data, Mirror analysis.
    Date: 2018–01–08
  27. By: Harald Badinger (Department of Economics, WU (Vienna University of Economics and Business)); Aurelien Fichét de Clairfontaine (Department of Economics, WU (Vienna University of Economics and Business))
    Abstract: This paper uses a structural gravity approach, specifying currency movements as trade cost component to derive an empirical trade balance model, which incorporates multilateral resistance terms and accounts for the cross-country variation in the exchange rate pass-through into import and export prices. The model is estimated using quarterly bilateral trade flows between 47 countries over the period 2010Q1-2017Q2, disaggregated into 97 commodity groups. Our results support the existence of an ``aggregate'' J-curve, pooled over commodity groups; at the same time they point to considerable heterogeneity in the trade balance dynamics across industries below the surface of aggregate data.
    Keywords: Exchange Rate Variations, Gravity, J-curve, Trade Balance
    JEL: F12 F31 F32
    Date: 2018–01
  28. By: Martin Kahanec
    Abstract: The economic literature starting with Borjas (2001) suggests that immigrants are more flexible than natives in responding to changing sectoral, occupational, and spatial shortages in the labor market. In this paper, we study the relative responsiveness to labor shortages by immigrants from various origins, skills and tenure in the country vis-à- vis the natives, and how it varied over the business cycle during the Great Recession. We show that immigrants in general have responded to changing labor shortages across EU member states, occupations and sectors more fluidly than natives. This effect is especially significant for low-skilled immigrants from the new member states or with the medium number of years since immigration, as well as with high-skilled immigrants with relatively few (1-5) or many (11+) years since migration. The relative responsiveness of some immigrant groups declined during the crisis years (those from Europe outside the EU or with eleven or more years since migration), whereas other groups of immigrants became particularly fluid during the Great Recession, such as those from new member states. Our results suggest immigrants may play an important role in labor adjustment during times of asymmetric economic shocks, and support the case for well-designed immigration policy and free movement of workers within the EU. Paper provides new insights into the functioning of the European Single Market and the roles various immigrant groups play for its stabilization through labor adjustment during times of uneven economic development across sectors, occupations, and countries.
    Keywords: immigrant worker, labor supply, skilled migration, labor shortage, wage regression, Great Recession
    JEL: J24 J61 J68
    Date: 2018–01–19
  29. By: Stephen J. Redding; David E. Weinstein
    Abstract: We develop a new framework for aggregating from micro to macro patterns of trade. We derive price indexes that determine comparative advantage across countries and sectors and the aggregate cost of living. If firms and products are imperfect substitutes, we show that these price indexes depend on variety, average demand/quality and the dispersion of demand/quality-adjusted prices, and are only weakly related to standard empirical measures of average prices, thereby providing insight for elasticity puzzles. Of the cross-section (time-series) variation in comparative advantage, 50 (90) percent is accounted for by variety and average demand/quality, with average prices contributing less than 10 percent.
    JEL: F10 F14
    Date: 2017–11
  30. By: Lutz Kilian; Xiaoqing Zhou
    Abstract: It is widely understood that the real price of globally traded commodities is determined by the forces of demand and supply. One of the main determinants of the real price of commodities is shifts in the demand for commodities associated with unexpected fluctuations in global real economic activity. There have been numerous proposals for quantifying global real economic activity. We discuss which criteria a measure of global real activity must satisfy to be useful for modeling industrial commodity prices, we examine which of the many alternative measures in the literature are most suitable for applied work, and we explain why some popular measures are inappropriate for modeling commodity prices. Given these insights, we re-examine in detail whether global real economic activity has declined since 2011 and by how much. Drawing on a range of new evidence, we show that the global commodity price boom of the 2000s appears to have been largely transitory. Our analysis has important implications for the design of structural models of commodity markets, for the analysis of the transmission of commodity price shocks to commodity-importing and -exporting economies, and for commodity price forecasting.
    Keywords: Econometric and statistical methods; International topics
    JEL: F44 Q11 Q31 Q41 Q43
    Date: 2018
  31. By: Jacopo Timini (Banco de España)
    Abstract: The Latin Monetary Union (LMU) agreement signed in December 1865 by France, Italy, Belgium and Switzerland standardised gold and silver coinage in member countries and allowed free circulation of national coins in the Union. In his seminal study, Flandreau (2000) found no evidence of an overall positive effect of the LMU on trade. In this paper, I estimate the effects of this currency agreement on trade. In my gravity model I explicitly take into account the changing conditions in the international environment that affected the LMU’s underlying economic foundations (i.e. the limits on silver coinage agreed upon in 1874) and its rules (i.e. the “liquidation clause” of 1885). I also test the existence of heterogeneous effects on bilateral trade within the LMU. In line with Flandreau, I find no significant LMU trade effects. However, I find support for the hypothesis that the LMU had significant trade effects for the period 1865-1874. These effects were nonetheless concentrated in trade flows between France and the rest of the LMU members, following a hub-and-spokes structure. Moreover, I find evidence for the existence of an 1874 “LMU-wide” structural break, which affected the course of trade flows within the Union.
    Keywords: international trade, currency unions, Latin Monetary Union, gravity model, bimetallism
    JEL: N73
    Date: 2017–11
  32. By: Prodyumna Goutam; Italo A. Gutierrez; Krishna B. Kumar; Shanthi Nataraj
    Abstract: Informal employment accounts for the majority of employment in many developing countries, yet its relevance to growth, and its links with the formal sector, remain poorly understood. A widely held view is that informality eventually gives way to formality as countries develop. In this paper, we examine the effects of growth opportunities — in the form of export-induced demand in Bangladesh — on four types of employment: formal, casual, unpaid, and self-employment. At an aggregate level, export-induced demand increases the levels of all four types of employment. We also conduct a district-level analysis, constructing a shift-share measure of trade exposure that relies on national, industry-level variation in exports, coupled with pre-existing, district-level shares of employment by industry. We find that the direct impact of trade is to increase labor force participation and formal employment. When we also include the indirect impacts of trade, in the form of induced demand through supply chain linkages, we find an even larger impact on labor force participation. The results also suggest that trade triggers an immediate increase in both formal and casual employment, as well as a longer-run increase in self-employment. We conclude that labor response to growth opportunities such as trade is not limited to formal employment, and a more nuanced understanding of informality in the growth process is needed.
    Date: 2017–07
  33. By: Oliver Lorz (RWTH Aachen University); Susanna Thede (University of Malta)
    Abstract: In this paper, we consider aid payments as a possible explanation for tariff overhangs. According to our hypothesis, rich countries may use development aid to pay for tariff concessions. Developing countries, in turn, may anticipate such a policy in the negotiations for tariff bindings. Setting the bound tariff rate at a relatively high level may then serve as a mechanism to incentivize rich countries to carry on with aid payments in the subsequent ``aid for trade’’ game. We empirically examine this hypothesis using detailed data (at the 6-digit HS level) on bound and applied tariff rates under the Uruguay agreement. Our results provide strong support for the view that aid recipients are more likely to adopt tariff overhangs, that they implement larger tariff overhangs than nonrecipient countries and that recipients of larger aid payments adopt tariff overhangs more frequently. We also find strong support of the theoretical model prediction that larger tariff overhangs are implemented by countries that receive more aid.
    Keywords: Tariff binding, tariff overhang, foreign aid.
    JEL: F13 O19
    Date: 2017
  34. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: We develop a two-country general equilibrium model where monopolistically competitive and oligopolistic industries coexist, and intrafirm division of labor involves economies of scale. If market size increases, the productivity of all industries and welfare improve. However, as the proportion of trading sectors rises, the productivity of trading industries increases, but that of non-trading industries decreases. Although the welfare effect of expansion of trading sectors is analytically unclear, a numerical simulation tells that it is positive.
    Date: 2018–01
  35. By: Michael P. Cameron (University of Waikato); Jacques Poot (University of Waikato)
    Abstract: We demonstrate that the conventional OLS and fixed effects estimators of gravity models of migration are biased, and that the interpretation of coefficients in the fixed effects model is typically incorrect. We present a new best linear unbiased estimator for gravity models of migration.
    Keywords: gross migration flows; gravity model; New Zealand
    JEL: O15 R23
    Date: 2018–01–15
  36. By: Powdthavee, Nattavudh (University of Warwick); Plagnol, Anke C. (City University London); Frijters, Paul (London School of Economics); Clark, Andrew E. (Paris School of Economics)
    Abstract: We use the 2015-2016 waves of the UK Household Longitudinal Study (Understanding Society) to look at subjective wellbeing around the time of the June 2016 EU membership Referendum in the UK (Brexit). We find that those reporting a preference for leaving the EU were 0.14 points less satisfied with life pre-referendum, with both misery (life satisfaction below 5) and job uncertainty significantly predicting the preference for a Leave vote. Post-referendum, those with leave preferences enjoyed a life satisfaction rise of 0.16 points, while there was a drop of 0.15 points for those preferring to remain. The initial positive subjective wellbeing effect of the Brexit vote was particularly pronounced for male and older respondents who reported a preference for leaving the EU. However, adaptation to the Brexit result appears to be complete three months after the EU Referendum date, both for those who preferred continued EU membership and those who did not.
    Keywords: life satisfaction, Brexit, United Kingdom, democracy
    JEL: I14 I30 I31
    Date: 2017–12
  37. By: Rahul Giri (International Monetary Fund); Junjie Xia (Peking University); Lukasz Drozd (Federal Reserve Bank of Philadelphia)
    Abstract: We study a model of establishment dynamics in which the acquisition of customers can be endogenously sluggish due to the presence of search frictions. We use time series data of how firms respond to shocks in markets in which they already operate to discipline the key friction that can slow customer turnover. Our estimation involves fitting SVAR-derived impulse responses of wedges that characterize the distance between data and a prototype frictionless economy. Using the estimated model, we ask: Does the model account for the observed slow growth of sale after firms enter into exporting, while being consistent with other basic trade facts? Our answer is: Largely, yes. The search technology parameters that fit the data well give rise to customer base dynamics that is approximately similar to a simple word-of-mouth diffusion of matches.
    Date: 2017
  38. By: Mishra, SK
    Abstract: In this study we have constructed a composite index of globalization of select Asian countries during 1970-2014 by minimizing the Euclidean norm of Shapley values of indicator variables contributing to the overall index. As a consequence, the mean expected marginal contributions of constituent variables to the overall index are approximately equal and thus, the overall composite index represents the constituent variables optimally. We call this index the Almost Equal Marginal Contribution (AEMC) index. We find that AEMC index and the KOF index of globalization are highly correlated (Pearson’s r=0.982). We find that Singapore, Cyprus, Israel, Qatar, Malaysia, Jordan, Lebanon, Turkey, Kuwait, Bahrain and Japan have done very well and scored above 0.7. At the other end, Yemen, Tajikistan, Bangladesh, Bhutan, Iran, Nepal and Myanmar have scored below 0.5. Trends in globalization are increasing in general, but the rate of globalization, which accelerated after 1991, lost is momentum after 2007. Disparities in globalization, as measured by Gini coefficient over the countries under study, were more or less constant up to 1985 but after that they started declining. We have found that the index of globalization goes well with other socio-economic measures such as Economic Freedom Index, International Innovation Index, Social Progress Index, Human Development Index and Corruption Perception Index, showing high values of Kendall’s Tau and Spearman’s Rho. Its association with Democracy Index is rather weak but positive. It is almost uncorrelated with the Gender Gap Index. We observe, therefore, that globalization index is moving well with the indices of socio-economic condition in the Asian countries.
    Keywords: Globalization; Synthetic index; Asian countries; Shapley values; Equi-marginal contribution, Lee thesis
    JEL: C43 C71 F02 O53
    Date: 2017–11–18

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