nep-int New Economics Papers
on International Trade
Issue of 2018‒03‒12
39 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. FDI and Supply Chains in Horticulture (Vegetables, Fruits, and Flowers, Raw, Packaged, Cut, and Processed): Diversifying Exports and Reducing Poverty in Africa, Latin America, and Other Developing Economies By Theodore H. Moran
  2. Special Economic Zones and WTO Compliance: Evidence from the Dominican Republic By Fabrice Defever; José-Daniel Reyes; Alejandro Riaño; Miguel Eduardo Sánchez-Martín
  3. The Dispute Settlement Crisis in the World Trade Organization: Causes and Cures By Tetyana Payosova; Gary Clyde Hufbauer; Jeffrey J. Schott
  4. The cost of non-TTIP: A Global Value Chain Approach. By Connell, William; Simons, Wouter; Vandenbussche, Hylke
  5. Special Economic Zones and WTO Compliance: Evidence from the Dominican Republic By Defever, F.; Reyes, J-D.; Riaño, A.; Sanchez-Martin, M. E.
  6. The Effects of International Linkages on Labor Demand by Skill Group By Haruka Yane
  7. What Do Trade Agreements Really Do? By Rodrik, Dani
  8. Decomposing Firm-Product Appeal: How important is Consumer Taste? By Aw-Roberts, Bee Yan; Lee, Yi; Vandenbussche, Hylke
  9. Estimating the Trade and Welfare Effects of Brexit: A Panel Data Structural Gravity Model By Harald Oberhofer; Michael Pfaffermayr
  10. Endogenous Climate Coalitions and Free Trade - Building the Missing Link By Thomas Kuhn; Radomir Pestow; Anja Zenker
  11. Gains from Multinational Competition for Cross-Border Firm Acquisition By Onur A. Koska
  12. Multimarket Linkages, Cartel Discipline and Trade Costs By Delina Agnosteva; Constantinos Syropoulos; Yoto V. Yotov
  13. Back on Track? A micro-macro Narrative of Italian Exports By Matteo Bugamelli; Silvia Fabiani; Stefano Federico; Alberto Felettigh; Claire Giordano; Andrea Linarello
  14. Information Frictions, Internet and the Relationship between Distance and Trade* By Leuven, Edwin; Akerman, Anders; Mogstad, Magne
  15. Firms Left Behind: Emigration and Firm Productivity By Yvonne Giesing; Nadzeya Laurentsyeva
  16. Unequal vulnerability to climate change and the transmission of adverse effects through international trade By Karine Constant; Marion Davin
  17. Regional Integration: Do intra-African trade and migration improve income in Africa? By Blaise Gnimassoun
  18. Shift-Share Instruments and the Impact of Immigration By Jaeger, David A; Ruist, Joakim; Stuhler, Jan
  19. Choix du régime de change et croissance économique : Une analyse empirique sur des données de panel africaines By Abouelkhaira, Anass; Gahaz, Taha; Y. Tamsamani, Yasser
  20. Estimating the scale of profit shifting and tax revenue losses related to foreign direct investment By Petr Janský; Miroslav Palanský
  21. The Effect of Uncertainty on Foreign Direct Investment: the Case of Mexico By López Noria Gabriela; Zamudio Fernández Juan José
  22. Diaspora externalities: A view from the South By Hillel Rapoport
  23. The economic effects of refugee return By Dadush, Uri
  24. Nonlinear Effects of the Transport Costs on the Wage Inequality By Yuichiro Matsumoto
  25. Exports and labor costs: Evidence from a French Policy By Malgouyres, Clément; Mayer, Thierry
  26. Protectionism and the Business Cycle By Barattieri, Alessandro; Cacciatore, Matteo; Ghironi, Fabio
  27. Fair Trade and the Fetishization of Levinasian Ethics By Jerome Ballet; Delphine Pouchain
  28. Global Migration in the 20th and 21st Centuries: the Unstoppable Force of Demography By Thu Hien Dao; Frédéric Docquier; Mathilde Maurel; Pierre Schaus
  29. How Kenya has Implemented and Adjusted to the Changes in International Transfer Pricing Regulations: 1920-2016 By Waris, Attiya
  30. The scale of “fuel tourism” across the Irish border By Kennedy, Sean; Lyons, Sean; Morgenroth, Edgar; Walsh, Keith
  31. Sanctions against Iran: An assessment of their global impact through the lens of international methanol prices By Hache, E.; Massol, O.
  32. The Renewable Fuel Standard in Competitive Equilibrium: Market and Welfare Effects By GianCarlo Moschini; Harvey E. Lapan; Hyunseok Kim
  33. Natural Resource Governance: Does Social Media Matter? By Kodila-Tedika, Oasis
  34. Following in their footsteps: an analysis of the impact of successive migration on rural household welfare in Ghana By Eva-Maria Egger; Julie Litchfield
  35. Cultural Change and the Migration Choice By Mauro Lanati
  36. How to change the game of security cooperation: The case of the ASEAN-China strategic partnership By Misalucha-Willoughby, Charmaine
  37. Material flow analysis of the forest-wood supply chain: a consequential approach for log export policies in France By Jonathan Lenglet; Jean-Yves Courtonne; Sylvain Caurla
  38. Globalization Effects on the Distribution of Income By Joern Kleinert
  39. Instrumental Variables and Causal Mechanisms: Unpacking the Effect of Trade on Workers and Voters By Christian Dippel; Robert Gold; Stephan Heblich; Rodrigo Pinto

  1. By: Theodore H. Moran (Center for Global Development)
    Abstract: Developing countries that manage to upgrade and diversify their export base experience faster growth and enjoy greater welfare gains than those that do not. In the contemporary period, most developing countries accomplish this via attracting foreign direct investment into novel sectors. They use foreign investment to hook into global supply chains, and then build backward linkages to local firms and workers in the host economy. Prior research on foreign investment and supply chains in emerging markets has focused almost exclusively on the creation of international networks in manufacturing and assembly. This paper extends that research, looking beyond manufacturing into supply chain creation in horticulture—in particular, vegetables, fruits, and flowers, raw, packaged, processed—in Africa, Latin America, and other developing regions. How have some developing countries managed to break into the ranks of horticultural exporters, while others have not? What are the obstacles to entering international supply chains for horticultural exports? How can emerging market economies maximize positive impacts on rural employment, on gender employment, and on externalities for local communities? The paper concludes with an investigation of policy implications for developing country governments, for the World Bank and regional financial institutions, and for other providers of external assistance. Of particular note, the policies required to generate supply chains in horticulture constitute a race-to-the-top among countries in improving national doing-business indicators, in upgrading local infrastructure, in establishing effective investment promotion procedures, and in launching public-private vocational-training partnerships in farming and agribusiness.
    JEL: F1 F2 M2 M3 O1 O2 O5 Q1
    Date: 2018–02–05
  2. By: Fabrice Defever; José-Daniel Reyes; Alejandro Riaño; Miguel Eduardo Sánchez-Martín
    Abstract: Special economic zones (SEZ), one of the most important instruments of industrial policy used in developing countries, often impose export share requirements (ESR). That is, firms located in SEZ are required to export more than a certain share of their output to enjoy a wide array of incentives – a practice prohibited by the World Trade Organization’s Agreement on Subsidies and Countervailing Measures. In this paper we exploit the staggered removal of ESR across products and over time in the SEZ of the Dominican Republic - a reform driven by external commitments to comply with WTO disciplines on subsidies - to evaluate how ESR effect export performance at the product- and firm-level. Using customs data on international trade transactions from the period 2006 to 2014, we find that making the Dominican SEZ regime WTO-compliant made SEZ more attractive locations for exporters to be based in. The reform, however, did not have a significant effect on the country’s exports nor on the share of export value originating from SEZ.
    Keywords: special economic zones, export share requirements, export subsidies, agreement on subsidies and countervailing measures, Dominican Republic
    JEL: F12 F13 O47
    Date: 2017
  3. By: Tetyana Payosova (Harvard Law School); Gary Clyde Hufbauer (Peterson Institute for International Economics); Jeffrey J. Schott (Peterson Institute for International Economics)
    Abstract: Since its inception in 1995, the World Trade Organization’s (WTO) dispute settlement mechanism has resolved an impressive number of trade disputes and has earned a reputation as the “crown jewel” of the global trading system. Today, however, the mechanism is in crisis. WTO members have failed to negotiate updates to the rulebook, including rules on dispute settlement itself. As a result, the WTO Appellate Body increasingly is asked to render decisions on ambiguous or incomplete WTO rules. Its interpretations of such provisions have provoked charges by the United States and others that binding Appellate Body rulings, which establish precedents for future cases, effectively circumvent the prerogative of member countries to revise the WTO rulebook and thus undercut the national sovereignty of WTO members. For the past few years, US officials have blocked appointments of Appellate Body members to force WTO members to negotiate new rules that address US concerns and limit the scope for judicial overreach. If this problem is not resolved, the Appellate Body soon will not have enough members to review cases and the vaunted WTO dispute settlement system will grind to a halt.
    Date: 2018–03
  4. By: Connell, William; Simons, Wouter; Vandenbussche, Hylke
    Abstract: What is the cost of non-TTIP for the European Union and the United States? To address this question, this paper develops a network trade model with international sector-level input-output linkages. Our model is entirely general with closed-form solutions and can be used for any trade policy experiment. We use World Input Output Data (WIOD) to simulate the effects of TTIP in terms of value added and employment. We find that a deepTTIP raises European GDP by 1.3%, and US GDP by 0.7%. The largest share of these TTIP gains result from the reduction in Non-Tariff Barriers (NTBs) rather than from the removal of tariffs. The potential gains from TTIP are higher for the EU than for the US. These findings may offer an explanation for the current US stance on TTIP.
    Keywords: global value chains; Leontief inverse matrix; networks; TTIP
    JEL: F10 F13 F47
    Date: 2018–02
  5. By: Defever, F.; Reyes, J-D.; Riaño, A.; Sanchez-Martin, M. E.
    Abstract: Special economic zones (SEZ), one of the most important instruments of industrial policy used in developing countries, often impose export share requirements (ESR). That is, firms located in SEZ are required to export more than a certain share of their output to enjoy a wide array of incentives -apractice prohibited by the World Trade Organization's Agreement on Subsidies and Countervailing Measures. In this paper we exploit the staggered removal of ESR across products and over time in the SEZ of the Dominican Republic -a reform driven by external commitments to comply with WTO disciplines on subsidies- to evaluate how ESR effect export performance at the product- and firm-level. Using customs data on international trade transactions from the period 2006 to 2014, we find that making the Dominican SEZ regime WTO-compliant made SEZ more attractive locations for exporters to be based in. The reform, however, did not have a significant effect on the country's exports nor on the share of export value originating from SEZ.
    Keywords: Special Economic Zones; Export Share Requirements; Export Subsidies; Agreement on Subsidies and Countervailing Measures; Dominican Republic
    Date: 2017
  6. By: Haruka Yane (Osaka School of International Public Policy, Osaka University)
    Abstract: This study empirically investigates how backward linkages impact the skill structure of domestic labor demand by estimating a system of factor equations and measuring elasticities of factor demand. This was made possible by constructing a dataset using data on labor compensation from the Socio-Economic Accounts (SEA) along with industry-level international trade data for the period 1995 to 2009, covering 40 countries from the World Input-Output Database (WIOD). Based on an input-output model, an indicator that measures the pervasiveness of global value chains (GVCs), gforeign value-added in exports (FVAiX), h is calculated. Including this index in a translog cost function, this study estimates a system of variable factor demand equations, using the iterative seemingly unrelated regressions (ISUR) method. Results reveal that participating in GVCs has both positive and negative effects on demand for different skill types of labor. On the one hand, there is a positive trend for high-skilled workers, regardless of the region or GDP per capita of the country. On the other hand, results indicate a widening gap between high- and low-skilled labor, suggesting an increase in inequality, especially in low-income countries. Consequently, it is becoming increasingly important to have policies that support flexible and frictionless labor markets in order to emolliate the change in demand, while sustaining the positives firms can benefit from access to variety of production options. Thus, these policies should facilitate the groups suffering from losses to move along sectors, countries and transfer their skills to a new task.
    Keywords: International trade, Labor demand, Labor skills, International linkage, Global value chains
    JEL: F14 F15 F16
    Date: 2018–03
  7. By: Rodrik, Dani
    Abstract: As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization, they have become more difficult to fit into received economic theory. Nevertheless, most economists continue to regard trade agreements such as the Trans Pacific Partnership (TPP) favorably. The default view seems to be that these arrangements get us closer to free trade by reducing transaction costs associated with regulatory differences or explicit protectionism. An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms - international banks, pharmaceutical companies, multinational firms. They may result in freer, mutually beneficial trade, through exchange of market access. But they are as likely to produce purely redistributive outcomes under the guise of "freer trade."
    Keywords: Free Trade Agreements
    JEL: F13
    Date: 2018–02
  8. By: Aw-Roberts, Bee Yan; Lee, Yi; Vandenbussche, Hylke
    Abstract: We develop and structurally estimate a trade model in order to identify the importance of consumer taste for exporters. The model separates taste from quality and productivity (TFPQ) at the firm-product level. Export data by destination countries allow us to identify the level of taste from consumer heterogeneity across destinations. We decompose export revenue into the contribution of taste, quality and costs. We find that taste is very important and explains about 50% of the variation in export revenue. Productivity (TFPQ) differences between firm-products become more prominent than taste in explaining export success only when the cost elasticity of improving quality is high.
    Keywords: exports; fi rm-product; productivity; Quality; taste
    JEL: F12 F14
    Date: 2018–02
  9. By: Harald Oberhofer; Michael Pfaffermayr
    Abstract: This paper proposes a new panel data structural gravity approach for estimating the trade and welfare effects of Brexit. The suggested Constrained Poisson Pseudo Maximum Likelihood Estimator exhibits some useful properties for trade policy analysis and allows to obtain estimates and confidence intervals which are consistent with structural trade theory. Assuming different counterfactual post-Brexit scenarios, our main findings suggest that UKs (EUs) exports of goods to the EU (UK) are likely to decline within a range between 7.2% and 45.7% (5.9% and 38.2%) six years after the Brexit has taken place. For the UK, the negative trade effects are only partially offset by an increase in domestic goods trade and trade with third countries, inducing a decline in UKs real income between 1.4% and 5.7% under the hard Brexit scenario. The estimated welfare effects for the EU are negligible in magnitude and statistically not different from zero.
    Keywords: constrained poisson pseudo maximum likelihood estimation, panel data, international trade, structural gravity estimation, trade policy, Brexit
    JEL: F10 F15 C13 C50
    Date: 2017
  10. By: Thomas Kuhn (Chemnitz University of Technology, Department of Economics, Professur VWL IV Finanzwissenschaft); Radomir Pestow (Chemnitz University of Technology, Department of Economics, Professur VWL IV Finanzwissenschaft); Anja Zenker (Chemnitz University of Technology, Department of Economics, Professur VWL IV Finanzwissenschaft)
    Abstract: In this paper, we discuss the endogenous formation of climate coalitions in an issue-linkage regime. In particular, we propose to build a link to the issue of preferential free trade. Trade privileges exclusively granted to members of the climate coalition work as an incentive mechanism for countries to join in. A multi-stage strategic trade framework is used in which coalition (fringe) countries can dispose of a policy set comprising a discriminatory import-tariff on dirty goods as well as producer emission permits traded on a common (local) permits market. A fairly novel modelling of the preferential free trade area is incorporated which is at the core of our approach. We find strong support for the claim that trade liberalization can promote relatively large and effective climate coalitions compared to the single issue regime. As a policy implication, negotiations on international climate treaties and free trade arrangements should be interlinked.
    Keywords: Climate Change, International Environmental Agreements, Free Trade, Issue Linkage, Emission Permits
    JEL: Q54 Q56 F18 F15 Q58
    Date: 2018–02
  11. By: Onur A. Koska (Department of Economics, Middle East Technical University, Ankara, Turkey)
    Abstract: This study shows that when there is multinational competition for foreign acquisition, the strategic use of a consumer welfare argument in regulating foreign market entry leads to a preemptive foreign acquisition. Even under fierce competition, foreign acquisition will emerge as part of a non-cooperative equilibrium (although multinationals would have gained more had they been able to credibly commit to a cooperative equilibrium of independent foreign sales, either via greenfield investment or trade under complete liberalization) which increases local welfare by more than both the case without foreign market entry and the case with foreign market entry via independent foreign sales.
    Keywords: Cross-Border Firm Acquisitions; Foreign Market Entry Regulations; Greenfield Investment; Trade; Consumer Welfare
    JEL: F23
    Date: 2018–01
  12. By: Delina Agnosteva; Constantinos Syropoulos; Yoto V. Yotov
    Abstract: We build a model of tacit collusion between firms that operate in multiple markets to study the effects of trade costs. A key feature of the model is that cartel discipline is endogenous. Thus, markets that appear segmented are strategically linked via the incentive compatibility constraint. Importantly, trade costs affect cartel shipments and welfare not only directly but also indirectly through discipline. Using extensive data on international cartels, we find that trade costs exert a negative and significant effect on cartel discipline. In turn, cartel discipline has a negative and significant impact on trade flows, in line with the model.
    Keywords: endogenous cartel discipline, competitiveness, multimarket contact, welfare, trade flows, trade costs, trade policy, gravity
    JEL: D43 F10 F12 F13 F15 F42 L12 L13 L41
    Date: 2017
  13. By: Matteo Bugamelli; Silvia Fabiani; Stefano Federico; Alberto Felettigh; Claire Giordano; Andrea Linarello
    Abstract: Between 1999 and 2016 – after the European Monetary System crisis of the mid-Nineties and the subsequent large swings among European currencies that ended with the adoption of the euro – Italy’s goods exports increased nearly twofold at current prices. Yet, they fared worse than foreign sales of the main euro-area competitors until 2007 (with the exception of France) and fell more intensely during the subsequent “Great Trade Collapse†. Only since 2010 signs of improvement have emerged: Italy’s exports have grown on average half a percentage point faster than the demand stemming from outlet markets and their share on world trade has remained broadly stable, after a protracted decline. Moreover, the negative growth gap vis-à -vis Germany has narrowed significantly. These facts raise two closely related questions. First, what are the main factors explaining Italy’s less favourable export performance relative to the other main euro-area countries since 1999? Second, are the recent signs of recovery the result of a successful structural adjustment of Italian firms or rather the fortuitous consequence of cyclical and hence temporary factors? Addressing these questions can help contribute to the debate on Italy’s structural weaknesses and persistently low productivity and GDP growth, as well as to gather some useful insights into Italy’s export outlook. We employ an extensive set of alternative indicators, based on multiple macro datasets as well as micro-data, to conduct an in-depth analysis of the dynamics of Italian goods exports since 1999, also exploiting the comparison with its three main euro-area competitors (France, Germany and Spain). We start by providing the aggregate picture and dig deeper into the geographical, sectoral and firm-level dimensions. We then analyse export determinants such as external demand, price and non-price competitiveness factors, including competition from emerging markets, the linkages between domestic demand on the one hand and financial and capacity constraints on the other hand. Finally, we try to map our descriptive evidence into a country-sector first and then a firm-level econometric exercise, in order to bridge the macro and the micro dimensions. We argue that the relatively unsatisfactory performance of Italian aggregate exports in the first sub-period, conveniently delimited by the inception of the euro and the eve of the global financial crisis (1999-2007), is the result of the interplay between three factors. The first is the significant appreciation of the real effective exchange rate for Italy, which compounded relative price dynamics and a nominal appreciation that were, on the whole, stronger than those of its main competitors, the latter owing to the different composition of trading partners across countries. These effects may also have been amplified by the higher exchange-rate elasticity of small exporters – as suggested by the literature and confirmed by our empirical findings – which in Italy have a relatively larger weight on aggregate exports. The second factor is the initial specialization in productions that were particularly exposed to the increasing competition of low-wage countries (China in particular) on world exports: we roughly estimate that this exposure could explain at least one tenth of the Italian under-performance on world markets relative to Germany. There is evidence of quality upgrading on the side of Italian exporters, possibly as a reaction to such competitive pressures, although not more pronounced than in the other main euro-area competitors. The third factor, which is intertwined with the previous two, is the size distribution of Italian firms and in particular the large number of small exporters, which struggled to: i) defend their exports in the face of the exchange rate appreciation; ii) keep pace with external demand; iii) successfully face competition from low-wage countries. In addition to these “domestic†factors, Italy’s relative export performance was further penalized by the exceptional growth in exports of both Germany, boosted by large price-competitiveness gains in turn also linked to exceptionally subdued wage dynamics, and Spain, in part favoured by the country’s initially limited penetration into world markets. Against the backdrop of these unfavourable developments before the crisis, over the recent six-year period, in a context of weak internal demand, Italian exports have significantly supported GDP growth and have outpaced the demand stemming from destination markets. Exporting firms have proved capable of adjusting to a shifting external environment more effectively than before and to brave the recessionary phase; they have also managed to reduce the negative growth differential vis-à -vis their main competitors, namely German exporters. To what extent do these facts signal a successful structural adjustment? On this, our evidence is mixed. On the one hand, cyclical or temporary factors may have been at play: price competitiveness was mainly helped by the nominal depreciation of the euro, although some relative-price adjustment vis-à -vis Germany was also in place, while favourable, possibly short-run, developments of world demand in specific sectors led to a positive contribution of Italy’s sectoral specialization. These positive effects were, however, partly counteracted by the cyclical weakness of domestic demand, especially in 2012-2013 against a backdrop of tight financial constraints, which exerted a drag on exports. On the other hand, the specialization of Italy’s exports shifted towards sectors (vehicles and pharmaceuticals) that are less exposed to competitive pressures stemming from Chinese producers, and towards productions that are particularly effective in activating domestic value added (food and beverages). Moreover, the selection process triggered by the exceptional difficulties encountered by micro and small firms both before and during the global financial crisis might have structurally strengthened the population of Italian exporters, making it more resilient to negative shocks and more capable of taking advantage of new opportunities.
    Keywords: exports, competitiveness, specialization, firm size
    JEL: F14 L11 L60
    Date: 2018–01
  14. By: Leuven, Edwin (Dept. of Economics, University of Oslo); Akerman, Anders (Stockholm University, Department of Economics); Mogstad, Magne (University of Chicago)
    Abstract: Recent work suggests the patterns of international trade may be distorted because of information frictions. Little is known, however, about how advancements in information communication technology (ICT) affect trade patterns. The goal of our paper is to analyze how and why the adoption of such technology affects bilateral trade flows. Our context is the adoption of broadband internet in Norwegian firms over the period 2000-2008. We use panel data with information on Norwegian firms with regards to their production, technology, and trade. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation in the availability and adoption of broadband internet in firms. We find that adoption of broadband internet makes trade patterns more sensitive to distance and economic size. Going from no broadband availability to full coverage increases the magnitude of the elasticity of trade with respect to distance by 0.12, and the elasticity of trade with respect to destination size by 0.06. For distance, this means that an increase in internet availability of 10 percentage points increases trade for a country at the 25th distance percentile by 1.1% more than for a country at the 75th distance percentile. The same difference for the GDP of a destination is 2.1%. We interpret the empirical results through a gravity theory of trade patterns, augmented with information frictions. We provide comparative statics predictions with respect to a reduction in information frictions, and show that these predictions are consistent with our empirical findings. Taken together, our results point to the importance of incorporating information frictions in the frequently used gravity equation, and they may help explain the so-called “distance puzzle” in international trade.
    Keywords: Internet; Trade; Information Frictions; Gravity model; Distance
    JEL: F12 F15 O33
    Date: 2018–02–15
  15. By: Yvonne Giesing; Nadzeya Laurentsyeva
    Abstract: This paper establishes a causal link between the emigration of skilled workers and firm performance in source countries. Using firm-level panel data from ten Eastern European countries, we show that the emigration of skilled workers lowers firm total factor productivity. We exploit time, country, and industry differences in the opening of EU labor markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from new EU member states. We argue that a potential channel behind this effect relates to the reduction in firm-specific human capital due to a higher worker turnover.
    Keywords: migration, firm productivity, human capital, EU enlargement
    JEL: O15 D24 F22 J24
    Date: 2017
  16. By: Karine Constant (Université Paris Est, Erudite, UPEC); Marion Davin (LAMETA, Univ. Montpellier, CNRS, INRA, Montpellier SupAgro, Univ. Paul Valéry)
    Abstract: In this paper, we consider the unequal distribution of climate change damages in the world and we examine how the underlying costs can spread from a vulnerable to a non-vulnerable country through international trade. To focus on such indirect effects, we treat this topic in a North-South trade overlapping generations model in which the South is vulnerable to the damages entailed by global pollution while the North is not. We show that the impact of climate change in the South can be a source of welfare loss for northern consumers, in both the short and the long run. In the long run, an increase in the South’s vulnerability can reduce the welfare in the North economy even in the case in which it improves its terms of trade. In the short run, the South’s vulnerability can also represent a source of intergenerational inequity in the North. Therefore, we emphasize the strong economic incentives for non-vulnerable -and a fortiori less-vulnerable – economies to reduce the climate change damages on – more – vulnerable countries.
    Keywords: International Trade, Climate change, Heterogeneous damages, Overlapping generations.,
    JEL: F18 F43 O41 Q56
    Date: 2018–01
  17. By: Blaise Gnimassoun
    Abstract: Regional integration in Africa is a subject of great interest, but its impact on income has not been studied sufficiently. Using cross-sectional and panel estimations, this paper examines the impact of African integration on real per capita income in Africa. To do this, we consider intra-African trade and migration flows as quantitative measures reflecting the intensity of regional integration. In order to address the endogeneity concerns, we use a gravity-based IV strategy. Our results show that, from a long-term perspective, African integration has not been strong enough to generate a positive, significant and robust impact on real per capita income in Africa. However it appears to be significantly income-enhancing in the short term but only through inter-country migration. These results are robust to a wide range of specifications. Further analysis shows that economic diversification, financial development and the quality of transport and telecommunication infrastructure significantly affect the impact of intra-African trade on per capita income. Their improvement would make intra-African trade income-improving. Our policy recommendations have been formulated in this direction.
    Keywords: Income per Capita, Trade, International Migration, Economic Integration, Africa.
    JEL: E64 F14 F22 F15 O55
    Date: 2018
  18. By: Jaeger, David A; Ruist, Joakim; Stuhler, Jan
    Abstract: A large literature exploits geographic variation in the concentration of immigrants to identify their impact on a variety of outcomes. To address the endogeneity of immigrants' location choices, the most commonly-used instrument interacts national inflows by country of origin with immigrants' past geographic distribution. We present evidence that estimates based on this "shift-share" instrument conflate the short- and long-run responses to immigration shocks. If the spatial distribution of immigrant inflows is stable over time, the instrument is likely to be correlated with ongoing responses to previous supply shocks. Estimates based on the conventional shift-share instrument are therefore unlikely to identify the short-run causal effect. We propose a "multiple instrumentation" procedure that isolates the spatial variation arising from changes in the country-of-origin composition at the national level and permits us to estimate separately the short- and long-run effects. Our results are a cautionary tale for a large body of empirical work, not just on immigration, that rely on shift-share instruments for causal inference.
    Keywords: Immigration; past settlement instrument; shift-share instrument; spatial correlation
    JEL: C36 J15 J21 J61
    Date: 2018–02
  19. By: Abouelkhaira, Anass; Gahaz, Taha; Y. Tamsamani, Yasser
    Abstract: The story of the choice of exchange rate regimes has not yet come to a consensus. Between early works on the subject (Mundell, 1961; McKinnon, 1963) and the most recent (Frenkel, 2017; Guzman et al., 2017), no superiority of a foreign exchange regime on the others is established ad vitam aeternam. It’s case by case. The purpose of this paper is then twofold. It first tests on panel data concerning 30 African countries the thesis of currency neutrality and attempts to rank, in case of rejection of this thesis, exchange rate regimes according to their economic performances by referring to economic growth rate. Next, it aims to list the internal structural characteristics of the panel countries which, by crossing them with exchange rate regimes, are the most favorable to economic growth. The paper concludes the absence of currency neutrality in case of African countries and an outperformance of intermediate regimes. The latter are more conductive to economic growth in the case of countries experiencing positive terms of trade shocks and benefiting from FDI inflows. On the other hand, the opening of capital account is incompatible with intermediate regimes, and external indebtedness doesn’t favor economic growth regardless of the exchange rate regime adopted. These results remain robust by testing several alternative econometric specifications (long-term estimate on five years’ window data, estimates by controlling regional effects and by adopting finer aggregations of exchange rate regimes).
    Keywords: Exchange Rate Regime, Economic Growth, FDI, External Debt, Opening of Capital Account, Terms of Trade, Panel Data, Africa
    JEL: C23 C26 F31 F43 O55
    Date: 2018–02–16
  20. By: Petr Janský; Miroslav Palanský
    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 the share of foreign direct investment from tax havens, the lower the reported rate of return on this investment. Like 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 enables us to study the distributional impact of international corporate tax abuse. We find that, on average, higher-income countries lose the least and lower-income countries lose the 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 the first comparison of its kind we find that every study identifies differences across income groups, but the nature of these differences varies across the four studies.
    Date: 2018
  21. By: López Noria Gabriela; Zamudio Fernández Juan José
    Abstract: This paper investigates the effect of uncertainty on FDI flows into the Mexican manufacturing sector during the period 2007-2015. Using a panel of manufacturing subsectors, we estimate a model by System GMM that includes domestic and external factors, as well as idiosyncratic (i.e. that affect manufacturing subsectors in a particular way) and aggregate (i.e. that affect all manufacturing subsectors in general) uncertainty measures as explicative variables. We also perform some simulations to quantify the effect of uncertainty on FDI flows. The main results show that uncertainty discourages FDI flows into the Mexican manufacturing sector. We also find that the idiosyncratic uncertainty measures are more important in explaining FDI flows than the aggregate uncertainty measures, with the exception of the global risk aversion index.
    Keywords: Uncertainty;Foreign Direct Investment;Expectations;Manufacturing
    JEL: D80 F21 D84 L60
    Date: 2018–02
  22. By: Hillel Rapoport
    Abstract: Migration decisions affect those left-behind in ways that are partly taken into account by market forces (e.g., wage effects on labour markets) and for the most part these can be seen as pure externalities. Diasporas are an example of such an externality. This paper reviews the recent economic literature on diaspora networks and development from the perspective of the global South. It is split into two parts: a first section reviews the effect of diaspora networks on trade, foreign investments, and the diffusion of knowledge as well as technology across borders. A second section looks at the cultural sway of the diaspora, investigating on a macro-level the role of migration in cultural convergence across countries and on a micro-level the impact of emigrants in the formation of political attitudes, fertility behaviour, and other aspects of culture.
    Date: 2018
  23. By: Dadush, Uri
    Abstract: The recent surge in the number of forcibly displaced persons who cross international borders in search of protection has prompted interest in evaluating policies that achieve the possible "end points" of the phenomenon. As envisaged by the United Nations High Commissioner for Refugees (UNHCR), these are the integration of the forcibly displaced persons in the country of destination, relocation in a third country, and return to the country of origin. The focus of this brief is on the third aspect, namely the appropriate conduct of return policy viewed from the perspective of the host country and, although the vast majority of forcibly displaced people are found in developing countries, the object here are policies in advanced countries.
    Keywords: refugees,return,migration,integration,displacement,forced,repatriation,deportation
    JEL: F22 J61
    Date: 2018
  24. By: Yuichiro Matsumoto (Osaka University)
    Abstract: This paper examines how transport costs affect wage inequality. Goods produced by the unskilled must pay higher transport costs because they have low market values. Reduction in transportation cost changes the relative wage. At first, only the skilled gains from the transportation improvement. Then the unskilled also gains from international trade. Therefore, transportation development causes Kuznets curve.
    Keywords: Alchian-Allen Hypothesis; Kuznets Curve; Trade Liberalization; Transportation Infrastructure; Wage Inequality
    JEL: F16 J31 L91 O11 R1
    Date: 2018–03
  25. By: Malgouyres, Clément; Mayer, Thierry
    Abstract: We investigate the role that labor costs hold in exporters' performance. To do so, we exploit a large-scale French reform that granted most firms a tax credit proportional to the wagebill of their employees paid below a given threshold. This policy effectively translated into a cut in labor cost whose magnitude varies depending on firm-specific wage structures. We use the predicted treatment intensity based on pre-reform composition of the labor force as an instrument for the actual policy-induced firm-level change in labor costs. Although our point estimates are consistent with commonly estimated firm-level trade elasticities combined with reasonable labor shares in total costs, coefficients are found to be very noisy, suggesting lack of robust evidence of a causal effect of the policy. We discuss several potential explanations for our results as well as their implications.
    Keywords: competitiveness; firm-level exports; labor costs
    JEL: D04 F14 F16 H32
    Date: 2018–02
  26. By: Barattieri, Alessandro; Cacciatore, Matteo; Ghironi, Fabio
    Abstract: We study the consequences of protectionism for macroeconomic fluctuations. First, using high-frequency trade policy data, we present fresh evidence on the dynamic effects of temporary trade barriers. Estimates from country-level and panel VARs show that protectionism acts as a supply shock, causing output to fall and inflation to rise in the short run. Moreover, protectionism has at best a small positive effect on the trade balance. Second, we build a small open economy model with firm heterogeneity, endogenous selection into trade, and nominal rigidity to study the channels through which protectionism affects aggregate fluctuations. The model successfully reproduces the VAR evidence and highlights the importance of aggregate investment dynamics and micro-level reallocations for the contractionary effects of tariffs. We then use the model to study scenarios where temporary trade barriers have been advocated as potentially beneficial, including recessions with binding constraints on monetary policy easing or in the presence of a fixed exchange rate. Our main conclusion is that, in all the scenarios we consider, protectionism is not an effective tool for macroeconomic stimulus and/or to promote rebalancing of external accounts.
    Keywords: inflation; liquidity trap; macroeconomic dynamics; protectionism; tariffs
    JEL: E31 E52 F13 F41
    Date: 2018–02
  27. By: Jerome Ballet; Delphine Pouchain
    Abstract: A recent paper in the Journal of business ethics (Staricco 2016) measures fair trade against Levinasian ethics. Our paper is a critic of that paper. We want to show that (1) Levinasian ethics is not necessarily the best normative reference for evaluating fair trade. This means that his fetishisation of Levinasian ethics in fair trade is not a valid idea, (2) the author commits a methodological error when he argues that fair trade should be evaluated with regard to an ideal normative criterion, and (3) his distorted view of fair trade does not accurately reflect the fair trade movement, and he commits another methodological error by confusing fair trade with a sole practice, whereas the movement is based on a multiplicity of ramifications and practices.
    Keywords: Fair trade, Levinas, Justice
    JEL: F13
    Date: 2018
  28. By: Thu Hien Dao (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and University of Bielefeld, Department of Economics, Germany); Frédéric Docquier (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES), FNRS, National Fund for Scientific Research, Belgium and FERDI, Fondation pour les Etudes et Recherches sur le Developpement International, France); Mathilde Maurel (FERDI, Fondation pour les Etudes et Recherches sur le Developpement International, France and CES, Centre d'economie de la Sorbonne, Universite de Paris 1, France); Pierre Schaus (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Computer Science & Engineering)
    Abstract: This paper sheds light on the global migration patterns of the past 40 years, and produces migration projections for the 21st century, for two skill groups, and for all relevant pairs of countries. To do this, we build a simple model of the world economy, and we parameterize it to match the economic and socio-demographic characteristics of the world in the year 2010. We conduct a backcasting exercise which demonstrates that our model fits the past trends in international migration very well, and that historical trends were mostly governed by demographic changes. We then describe a set of migration projections for the 21st century. In line with backcasts, our world migration prospects and emigration rates from developing countries are mainly governed by socio-demographic changes: they are virtually insensitive to the technological environment. As far as OECD countries are concerned, we predict a highly robust increase in immigration pressures in general (from 12 in 2010 to 17-19% in 2050 and 25-28% in 2100), and in European immigration in particular (from 15% in 2010 to 23-25% in 2050 and 36-39% in 2100). Using development policies to curb these pressures requires triggering unprecedented economic takeoffs in migrants countries of origin. Increasing migration is therefore a likely phenomenon for the 21st century, and this raises societal and political challenges for most industrialized countries.
    Keywords: international migration, migration prospects, world economy, inequality
    JEL: F22 F24 J11 J61 O15
    Date: 2018–02–20
  29. By: Waris, Attiya
    Abstract: transfer pricing; cross-border taxation; Kenya; Africa; tax avoidance; base erosion and profit shifting.
    Date: 2017
  30. By: Kennedy, Sean; Lyons, Sean; Morgenroth, Edgar; Walsh, Keith
    Date: 2018
  31. By: Hache, E.; Massol, O.
    Abstract: Iran’s energy and petrochemical exports have recently been restricted by a series of international sanctions. This paper focuses on one of the country’s exports, namely methanol - a petrochemical increasingly used for fuel blending and traded at various locations worldwide – and empirically explores the relationships among the North American, European, and Asian markets to investigate the incidence of these sanctions. The analyses are conducted under a parity bounds framework based on Negassa and Myers (2007). The model was applied to the main methanol importing markets to estimate the effects of the sanctions on the degree of spatial integration. The findings document the occurrence of a complete reconfiguration of the spatial extent of the methanol markets. Under the sanctions, an increased degree of market integration was observed across the Atlantic, while fragmentation rose between Europe, South East Asia, and the two giant economies of China and India which both experienced lower prices.
    Keywords: Iran; sanctions; law of one price; market integration; methanol
    Date: 2016–04–06
  32. By: GianCarlo Moschini (Center for Agricultural and Rural Development (CARD)); Harvey E. Lapan; Hyunseok Kim
    Abstract: We construct a tractable multi-market equilibrium model designed to evaluate alternative biofuel policies. The model integrates the US agricultural sector with the energy sector and it explicitly considers both US ethanol and biodiesel production. The model provides a structural representation of the renewable fuel standard (RFS) policies, and it uses the arbitrage conditions defining the core value of renewable identification number (RIN) prices to identify the relevant competitive equilibrium conditions. The model is parameterized, based on elasticities and technical coefficients from the literature, to represent observed 2015 data. The model is simulated to analyze alternative scenarios, including: repeal of the RFS; projected 2022 RFS mandates; and, optimal (second best) mandates. The results confirm that the current RFS program considerably benefits the agriculture sector, but also leads to overall welfare gains for the United States (mostly via beneficial terms of trade effects). Implementation of projected 2022 mandates, which would require further expansion of biodiesel production, would lead to a considerable welfare loss (relative to 2015 mandate levels). Constrained (second-best) optimal mandates would entail more corn-based ethanol and less biodiesel than currently mandated.
    Date: 2017–06
  33. By: Kodila-Tedika, Oasis
    Abstract: In this paper we study the relationship between communication and ”transparency of information” and governance by exploring the link between social media and natural resource governance. Using a cross-country analysis, we document a robust and statistically significant positive relationship between Facebook penetration (a proxy for social media) and natural resource governance. It follows that countries with higher facebook penetration levels enjoy natural resource governance of better quality than countries with low levels of facebook penetration. The positive effect of facebook is robust to controlling for other determinants of institutional quality, additional controls, outliers, inter alia.
    Keywords: Natural Resources, Rents, Institutions, Governance, Social Media, Facebook, Internet, Transparency of information
    JEL: D73 D8 G14 H11 O1 P26 P48 Q34 Z13
    Date: 2018–02–24
  34. By: Eva-Maria Egger; Julie Litchfield
    Abstract: The decision to migrate is often influenced by the experience of earlier migrants from one’s household. Earlier migrants provide information on likely opportunities and potential risks and can offer support at destination to later migrants. We explore patterns of migration within rural households and the impact that these later migrants have on household welfare outcomes. Specifically, we use a household panel survey collected in 2013 and 2015 in rural areas of Ghana. We exploit the panel nature of the data and a weighting method to overcome sources of bias. Welfare is measured with an asset index of housing quality. We find that more recent or ‘new’ migrants are more likely to be from a younger generation, they face lower migration costs, and few of them remit. We find no effect of sending a new migrant on the asset index. We conclude that the different nature of migration of new migrants implies neither an economic gain for the household nor a loss. The reason for the former is that the more recent migrants remit less or not at all compared to earlier waves of migrants and the reason for the latter is that migration becomes less costly with prior experience.
    Date: 2018
  35. By: Mauro Lanati
    Abstract: Cultural differences play an important role in shaping migration patterns. The conventional proxies for cross country cultural differences - such as common language, ethnicity, genetic traits or religion - implicitly assume that cultural proximity between two countries is constant over time and symmetric, which is far from realistic. This paper proposes a tractable model for international migration which explicitly allows for the time varying and asymmetric dimensions of cultural proximity. Similarly to Disdier et al (2010) we assume that the evolution of bilateral cultural affinity over time is reflected in the intensity of bilateral trade in cultural goods. Our empirical framework includes a comprehensive set of high dimensional fixed effects which enables for the identification of the impact of cultural proximity on migration over and beyond the effect of pre-existing cultural and historical ties. The results are robust across different econometric techniques and suggest that positive changes in cultural relationships over time foster bilateral migration.
    Keywords: Migration, Trade in Cultural Goods, Gravity Model
    JEL: F16 F22 Z10
    Date: 2018–02–26
  36. By: Misalucha-Willoughby, Charmaine
    Abstract: The challenges of a polycentric world necessitate new ways of addressing global problems. Of late, strategic partnerships have become prominent features in the foreign profiles of international actors. They can be seen as a practice of cooperation, and can be further broken down to patterned actions, such as diplomacy and summitry. These practices feature prominently in the ASEAN-China strategic partnership for two reasons. First, diplomacy has proven to be pivotal in both the securitization and the desecuritization of the South China Sea maritime dispute. Second, summitry is the foundation of the ASEAN-China Dialogue Relations, which was formally established in 1996, and on which the strategic partnership is built. Looking at the ASEAN-China strategic partnership from the perspective of practice theory can then identify the constitutive effects of practices on regional cooperation. This effectively moves the discussion about strategic partnerships from what they are to how they operate in international relations. The practices of diplomacy and summitry in ASEAN-China relations can then be argued as the key forces behind regional cooperation.
    Keywords: ASEAN,China,Strategic partnership,Philippines,South China Sea,Security cooperation,Practice theory
    Date: 2018
  37. By: Jonathan Lenglet (UMR INRA – AgroParisTech, Laboratoire d’Etude des Ressources Forêts-Bois, 54042 Nancy Cedex); Jean-Yves Courtonne (STEEP team, INRIA Grenoble - Rhône-Alpes, Montbonnot, France; Université Grenoble Alpes, France; Artelia Eau et Environnement, Echirolles, France); Sylvain Caurla (UMR INRA – AgroParisTech, Laboratoire d’Économie Forestière, 54042 Nancy Cedex, France)
    Abstract: In the context of national policies for climate mitigation and energy transition, the forestwood sector is drawing increasing attention, not only for energy wood but also for longer-life timber products. At the same time, part of the French timber transformation industry suffers from difficulties to adapt to recent changes on global markets, which translates into net exports of raw wood and imports of transformed products, detrimental to both the trade balance and the local creation of wealth. This article first aims at objectifying this situation by undertaking the first material flow analysis of the French forest-wood supply chain. We then evaluate the potential consequences of various scenarios of raw wood exports reduction policies, namely subsidies for consumption or transformation and taxation of exports, on both economic outcomes for the different actors and material flows. We thus provide an example of coupling material flow analysis with economic modeling in an attempt to move from the diagnostic phase to the assessment of possible actions within a decision-making perspective.
    Keywords: Wood-flow analysis, Wood sector, Log exports, Forest sector models.
    JEL: C80 C63 Q23
    Date: 2016–04
  38. By: Joern Kleinert (University of Graz, Austria)
    Abstract: Changes in the distribution of income are one of the main challenges to social cohesion in OECD countries. In particular, empirical evidence points to a large share of growth accruing to the top 1% in the income distribution during the last three decades. The role of globalization in this process is hotly debated. In this paper, I present a theoretical mechanism to explain how globalization affects income distribution, which has not been studied extensively yet. I build my argument on the Melitz model, which I augment with a banking sector to replace the implicit complete financial market in the original paper. The generated rents thus become income-relevant and accrue by assumption to the firms’ top managers. This allows me to assess globalization’s effect on the top end of the income distribution. I find that globalization has a strong effect on income distribution but I do not conclude that reversing globalization is the solution for the challenge to social cohesion.
    Keywords: International trade; Firm heterogeneity; income distribution
    JEL: F12 J31
    Date: 2018–03
  39. By: Christian Dippel; Robert Gold; Stephan Heblich; Rodrigo Pinto
    Abstract: This paper shows that import exposure affects voting behavior because it affects local labor markets. We develop a new framework for mediation analysis where one instrumental variable is sufficient to identify three causal effects. Using German data from 1987–2009, we find that import exposure increases the support of nationalist parties and causes labor market turmoil. The voting response to import exposure can entirely be explained by the labor market adjustments to import exposure. Individual-level data corroborate our findings. Our novel estimation framework is applicable to a broad range of empirical studies interested in the causal mechanisms behind causal effects.
    Keywords: instrumental variables, causal mediation analysis, import exposure, voting, local labor markets
    JEL: C36 D72 J20
    Date: 2017

This nep-int issue is ©2018 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.