nep-int New Economics Papers
on International Trade
Issue of 2018‒05‒07
thirty-two papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. The Cost of Non-Europe, Revisited By Thierry Mayer; Vincent Vicard; Soledad Zignago
  2. Export Competitiveness and Trade Agreements: Analysis and Insights from Israel’s Experience By Ronen, Eyal; Benizri, Yohan
  3. Global and Regional Value Chains: How Important, How Different? By Doris Hanzl-Weiss; Sandra M. Leitner; Robert Stehrer; Roman Stöllinger
  4. Firm-to-firm Connections in Colombian Imports By Bernard, Andrew B.; Boler, Esther; Dhingra, Swati
  5. GVCs and the Endogenous Geography of RTAs By Lionel Gérard Fontagné; Gianluca Santoni
  6. Reciprocal vs nonreciprocal trade agreements: which have been best to promote exports? By Salvador Gil-Pareja; Rafael Llorca-Vivero; José Antonio Martínez-Serrano
  7. Unraveling the economic performance of the CEEC countries. The role of exports and global value chains By Jan Hagemejer; Jakub Mućk
  8. The Impact of Immigration on Firm-Level Offshoring By William W. Olney; Dario Pozzoli
  9. Trade Liberalization, Absorptive Capacity and the Protection of Intellectual Property Rights By Arghya GHOSH; ISHIKAWA Jota
  10. Least-developed countries, transfer of technology and the TRIPS Agreement By Watal, Jayashree; Caminero, Leticia
  11. Intersectoral Markup Divergence By Kristian Behrens; Sergey Kichko; Philip Ushchev
  12. Recent trade dynamics in Asia: Examples from specific industries By Auboin, Marc; Borino, Floriana
  13. Virtual Water Trade: The Implications of Capital Scarcity By Mohamad Afkhami; Thomas Bassetti; Hamed Ghoddusi; Filippo Pavesi
  14. On the heterogeneous effects of market access barriers: evidence from small and large Peruvian exporters By Fugazza, Marco; Olarreaga, Marcelo; Ugarte, Cristian
  15. Networks and Trade By Andrew B. Bernard; Andreas Moxnes
  16. Firms and Economic Performance: A View from Trade By Bonfiglioli, Alessandra; Crinò, Rosario; Gancia, Gino A
  17. Contesting an International Trade Agreement By Matthew T. Cole; James Lake; Benjamin Zissimos
  18. Inward Greenfield FDI and Patterns of Job Polarisation By Sara Amoroso; Pietro Moncada-Paterno-Castello
  19. Endogenous growth and global divergence in a multi-country agent - based model By Giovanni Dosi; Andrea Roventini; Emmanuele Russo
  20. Three globalizations, not two: Rethinking the history and economics of trade and globalization By Thomas I. Palley
  21. International Joint Ventures and Internal vs. External Technology Transfer: Evidence from China By Kun Jiang; Wolfgang Keller; Larry D. Qiu; William Ridley
  22. Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia By Girum Abebe; Margaret S. McMillan; Michel Serafinelli
  23. Estimating Bargaining-related Tax Advantages of Multinational Firms By Peter H. Egger; Nora M. Strecker; Benedikt Zoller-Rydzek
  24. Trade and Minimum Wages in General Equilibrium: Theory and Evidence By Xue Bai; Arpita Chatterjee; Kala Krishna; Hong Ma
  25. How Do Trade and Communication Costs Shape the Spatial Organization Of Firms? By Toshitaka Gokan; Sergey Kichko; Jacques-François Thisse
  26. The role of local currency pricing in international transmission effects of corporate tax reduction in an economy with vertical production linkage and foreign direct investment By Dohwa, Kohjiro
  27. Knowledge Transfer Abroad: The Role of U.S. Inventors within Global R&D Networks By Lee Branstetter; Britta Glennon; J. Bradford Jensen
  28. GVCs and the Endogenous Geography of RTAs By Lionel Fontagné; Gianluca Santoni
  29. European Integration and the Future Institutions of Europe By Harald Badinger
  30. Effects of Distance and Borders on International and Interregional Tourist Flows: A micro-gravity analysis By MORIKAWA Masayuki
  31. Globalisation and Urban Polarisation By Venables, Anthony J
  32. Did the Presence of Immigrants Affect Vote Outcome in the UK Brexit Referendum ? By Hisahiro Naito and Mizuho Asai

  1. By: Thierry Mayer; Vincent Vicard; Soledad Zignago
    Abstract: In this paper we quantify the Cost of Non-Europe, i.e. the trade-related welfare losses that would occur under different scenarios of undoing the European Union. Thirty years after the terminology of Non-Europe was used to give estimates of the gains from further integration, we use modern versions of the gravity model to quantify the trade creation implied by the EU, and apply those to counterfactual exercises where for instance the EU returns to a shallow-type free trade regional agreement, or reverts to WTO rules. Those scenarios are envisioned with or without the Brexit happening, which points to interesting cross-country differences and potential cascade effects in doing and undoing of trade agreements.
    Keywords: Trade integration, Gravity, European Union.
    JEL: F1
    Date: 2018
  2. By: Ronen, Eyal; Benizri, Yohan
    Abstract: Israeli manufactured export performance has been on a growth path for the past two decades. This growth is partly due to the continuing shift in Israeli export specialization patterns from traditional products towards technology-intensified exports. However, Israel’s strong export competitiveness also derives from proliferating free trade agreements (FTAs) with its trading partners, especially the European Union (EU). This paper analyzes export statistics to provide data validating the positive impact of recent FTAs on Israel’s export comparative advantages across all sectors between 1995 and 2015. It employs an econometric framework to examine stability and specialization trends, as well as convergence. Furthermore, the authors add to the literature by performing a survival analysis, using the Kaplan-Meier Survival Rate model, to identify particular Israeli export sectors that have benefited from a longer pe- riod of competitive advantage than other sectors due to the EU-Israel Association Agreement.
    Keywords: Export Competitiveness, Survival Analysis, Trade Agreements.
    JEL: F13 F14
    Date: 2018–04
  3. By: Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This study investigates in detail value chain trade of the EU and its Member States, compares it to that of other trading blocs and regions such as NAFTA and East Asia, and delves into implications of value chain trade on specialisation and competitiveness as well as on the declining income elasticity of trade. The analysis of value chain (VC) trade, understood as trade that involves internationally organised production processes, is based on the latest update of the World Input-Output Database (WIOD). It relies to a large extent on a forward production integration measure termed re-exported domestic value added (DVAre) which comprises exports of intermediates that cross international borders at least twice. Results confirm the conjecture that the expansion of international value chains has come to a halt in the post-crisis period (2011-2014). Still, the EU’s VC trade was growing at the same pace as value added exports in general in the post-crisis years, implying that value chains were not dismantled. In contrast, worldwide VC trade was indeed less dynamic than value added exports, which could be seen as a sign that some value chains are on the retreat. Zooming closer into the EU, there was a marked reshuffling of market shares of Member States in EU-wide VC trade from large Member States such as France, Italy and the United Kingdom towards a group of Central European (CE) economies – Germany, Austria, the Czech Republic, Hungary, Poland and Slovakia – which together form the Central European Manufacturing Core. Looking at the question whether VC trade is rather regional in scope, VC trade is separated into regional value chain (RVC) trade – involving only regional production partners – and global value chain (GVC) trade – involving also extra-regional partner countries. For the EU as a whole this split is about half-half, with only a slight move towards GVC trade between 2000 and 2014. Strikingly, demand is strongly shaping the organisation of production while RVCs are predominantly producing for the EU market, GVCs are predominantly procuring for third countries. As regards implications of value chain trade, these are harder to assess. Overall, implications for structural change and competitiveness are rather country and context specific. Changes in attitudes towards international value chains contributed to the significant decline in the income elasticity of trade.
    Keywords: value chain trade, global value chains, regional value chains, Factory Europe, Factory North America, Factory Asia, revealed export preferences, regional introversion index, specialisation, competitiveness, income elasticity of trade
    JEL: F14 F15
    Date: 2018–04
  4. By: Bernard, Andrew B.; Boler, Esther; Dhingra, Swati
    Abstract: The vast majority of world trade flows is between firms. Only recently has research in international trade started to emphasize the importance of the connections between exporters and importers both in aggregate trade flows and in the negative relationship between trade and geographic distance. This chapter documents the role of firm-to-firm connections in trade flows and the formation and duration of these importer-exporter relationships. Using customs data from Colombia for 1995-2014, we are able to identify both the Colombian importing firm and the foreign exporter in every Colombian import and export transaction. We document both the nature of these bilateral trading relationships and their evolution over time.
    Keywords: export growth; exporters; Gravity; Heterogeneous Firms; Importers; margins of trade
    JEL: F14
    Date: 2018–04
  5. By: Lionel Gérard Fontagné; Gianluca Santoni
    Abstract: Geography, economic size, or common history, help predicting signed regional trade agreements (RTAs). However, not all signed RTAs are “natural” according to economic determinants. En-dogeneity and general equilibrium effects of RTAS are the two mechanisms addressed in this paper. We estimate the time-varying probability for a country pair to sign a trade agreement and build upon structural gravity in general equilibrium to determine how the patterns of Global Value Chains shape the evolving geography of optimal RTAS. Our results confirm that the endogenous geography of RTAs is shaped by the development of GVCs.
    Keywords: preferential trade agreements, global value chains, structural gravity
    JEL: F13 F14 F15
    Date: 2018
  6. By: Salvador Gil-Pareja (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Rafael Llorca-Vivero (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); José Antonio Martínez-Serrano (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)
    Abstract: The Doha Development Agenda recognizes the central role that international trade can play in the promotion of economic development. In fact, the increase of exports from developing countries to developed nations' markets has been considered a key element for developing countries to realize the potential benefits of globalization. Over the last decades developed countries have provided preferential access to their markets to developing countries through nonreciprocal trade agreements. Moreover, developing countries have also participated in reciprocal trade agreements. This paper investigates comparatively, for the first time, the effect of both kinds of trade agreements on exports from developing countries but also from the developed world. We find that both agreements, but especially the reciprocal agreements, have boosted exports from beneficiary countries to developed countries. Our results give support to the argument raised by critics of nonreciprocal preference regimes who consider that developing countries should abandon their reliance on one-way trade preferences in favor of reciprocal agreements.
    Keywords: Preferential trade agreements, Nonreciprocal preferential trade agreements, GATT/WTO, developing countries, exports, gravity equation.
    JEL: F14
    Date: 2018–02
  7. By: Jan Hagemejer (Narodowy Bank Polski and University of Warsaw); Jakub Mućk (Narodowy Bank Polski and Warsaw School of Economics)
    Abstract: In this study we assess the importance of exports and global value chains (GVC) participation for economic growth. Using novel methods and an extensive dataset, we decompose GDP growth in the Central and Eastern European (CEEC) countries to show that in a large part of the period of transition and integration with the EU, exports have played a predominant role in shaping economic growth. We also show that exports have been the major factor driving the convergence of the CEEC countries with their advanced counterparts. We employ panel methods to analyze the determinants of growth of exported value added and show that the major growth drivers in the analyzed period of 1995-2014 are GVC participation, imports of technology and capital deepening.
    Keywords: economic growth, international trade, GVC, heterogeneous panels, common correlated effects estimation, CEEC
    JEL: C23 F21 O33
    Date: 2018
  8. By: William W. Olney (Williams College); Dario Pozzoli (Copenhagen Business School and the Tuborg Centre for Globalization and Firms)
    Abstract: This paper studies the relationship between immigration and offshoring by examining whether an influx of foreign workers reduces the need for firms to relocate jobs abroad. We exploit a Danish quasi-natural experiment in which immigrants were randomly allocated to municipalities using a refugee dispersal policy and we use the Danish employer-employee matched data set covering the universe of workers and firms over the period 1995-2011. Our findings show that an exogenous influx of immigrants into a municipality reduces firm-level offshoring at both the extensive and intensive margins. The fact that immigration and offshoring are substitutes has important policy implications, since restrictions on one may encourage the other. While the multilateral relationship is negative, a subsequent bilateral analysis shows that immigrants have connections in their country of origin that increase the likelihood that firms offshore to that particular foreign country.
    Keywords: Immigration, Offshoring
    JEL: F22 F16 J61 F23
    Date: 2018–04
  9. By: Arghya GHOSH; ISHIKAWA Jota
    Abstract: We examine how trade liberalization affects South's incentive to protect intellectual property rights (IPR) in a North-South duopoly model where a low-cost North firm competes with a high-cost South firm in the South market. The North firm serves the South market through either exports or foreign direct investment (FDI). The extent of effective cost difference between North and South depends on South's imitation, which in turn depends on South's IPR protection and absorptive capacity and North firm's location choice, all of which are endogenously determined in our model. For a given level of IPR protection, South's absorptive capacity under exports may be greater than under FDI. Even though innovation is exogenous to the model (and hence unaffected by South's IPR policy), strengthening IPR protection in South can improve its welfare. The relationship between trade costs and the degree of IPR protection that maximizes South welfare is non-monotone. In particular, South has an incentive to protect IPR only when trade costs are moderate. When masking technology or licensing is incorporated into the model, however, some protection of IPR may be optimal for South even if the trade costs are not moderate.
    Date: 2018–04
  10. By: Watal, Jayashree; Caminero, Leticia
    Abstract: This paper examines the background of Article 66.2 of the TRIPS Agreement, the nature of this obligation on developed country Members that pertains to the promotion of technology transfer to LDC Members and how it is being implemented and how such implementation is being monitored in the TRIPS Council. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) mandates to developed country Members to provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least developed country (LDC) Members in order to enable them to create a sound and viable technological base. This paper introduces the background to this legal obligation; Part 2 provides an understanding of the definition of LDCs in the World Trade Organization (WTO), and thus identifies the potential beneficiaries of this obligation. Part 3 recounts the role of LDCs in the TRIPS negotiations in the Uruguay Round and how their demands were reflected in the final outcome. Part 4 focuses on the text of Article 66.2 and breaks out its main elements in order to analyse the scope and extent of this obligation. Part 5 tracks the monitoring phases of the implementation of Article 66.2 in the TRIPS Council: (a) 1995-1998: not present in the Council's agenda, (b) 1998-2000: inclusion in the agenda and notification of the first reports, (c) 2001-2003: negotiating a monitoring mechanism resulting in the Decision on Implementation of Art. 66.2 of 19 February 2003, with specific provisions on the periodicity and content of the developed country reports, (d) 2003-2016: the implementation of the monitoring mechanism, detailing the first annual review in 2003, the Secretariat-organized workshops from 2008 onwards between developed country and LDC members to review Art. 66.2 annual reports, and revised reporting format proposed by LDC Group in 2011. Part 6 analyses the reports submitted by developed country members from 2003 to 2016. The analysis focuses on the number of reports received, the broad areas of technology in which incentive programmes are being reported and how it has evolved between 2003 with 2016, which LDCs have been beneficiaries of the reported incentives and in which areas of technology. Part 7, highlights the differences in the understanding of terms "transfer of technology" and "incentives". Part 8 concludes that both developed country Members and LDC Members should take steps to improve the implementation of Article 66.2 in order to assess the impact of the Article 66.2 incentives on ground in the beneficiary LDCs.
    Keywords: technology transfer,LDCs,Article 66.2,TRIPS,incentives
    JEL: F13 O3 O31 O34 O38
    Date: 2017
  11. By: Kristian Behrens; Sergey Kichko; Philip Ushchev
    Abstract: We develop a general equilibrium model of monopolistic competition with a traded and a non-traded sector. Using a broad class of homothetic preferences—that generate variable markups, display a simple behavior of their elasticity of substitution, and nest the ces as a limiting case—we show that trade liberalization: (i) reduces domestic markups and increases imported markups in the traded sector; (ii) increases markups in the non-traded sector; and (iii) increases firm sizes in both sectors. Thus, while domestic and export markups in the traded sector converge across countries, markups diverge across sectors within countries. The negative welfare effects of higher markups and less consumption diversity in the non-traded sector dampen the positive welfare effects of lower markups and greater diversity in the traded sector.
    Keywords: monopolistic competition, variable markups, trade liberalization, non-traded goods, markup divergence
    JEL: F12 F15
    Date: 2018
  12. By: Auboin, Marc; Borino, Floriana
    Abstract: This paper looks at the extent to which the shift in the lower value added production to countries in the following development "tier" is actually becoming a reality. Several countries in East Asia have been upgrading production patterns and moving up the value chain, this paper looks at how this helps and offers new opportunities to less advanced countries to integrate in world trade. The paper uses a combination of techniques, from an analysis of disaggregated trade flows by country and sectors, to the calculation of trade intensity indices by country and sector, and value-added trade by sector. It finds combined evidence of forward and backward trade increasing between several neighbouring Asian economies and China, in the most labour-intensive industries in particular. Econometric analysis shows that relative unit labour costs are an explanatory factor of increased trade links. In cases, the intensification of trade links on the export side can relate to a strongly expanding local market (for example India for electronic products such as smartphones), but mostly the intensification of trade links takes place both on the import and export sides with markets which are much smaller than China (Vietnam, Bangladesh, etc.), and which experienced increased outward-processing activities as a result of China's production upgrade.
    Keywords: investment,trade policy,business cycles
    JEL: E22 F13 F44
    Date: 2018
  13. By: Mohamad Afkhami (Stevens Institute of Technology); Thomas Bassetti (University of Padova); Hamed Ghoddusi (Stevens Institute of Technology); Filippo Pavesi (Department of Economics (University of Verona))
    Abstract: The original idea behind the virtual water (VW) concept is that water-abundant countries will become producers of water-intensive goods and consequently net exporters of water, and this will alleviate the initial unequal distribution of hydric resources. We criticize this optimistic view by introducing empirical evidence that is consistent with the Heckscher-Ohlin model of international trade. We find that, though virtual water exports are increasing in the combined availability of water and arable land when comparing countries with a similar level of available water-land resources, those with higher (lower) levels of physical-human capital tend to be net importers (exporters) of water. This result relies on the intuition that high levels of capital accumulation lead water to become a relatively scarce factor in developed countries. Thus, while more developed countries shift away from agriculture, less developed countries that lack sufficient capital do not have this option and end up using water resources even if they are not abundant. Such a trade pattern could create immediate economic benefits for less developed countries, but also exerts pressure on their water resources. Therefore, prioritizing economic development in countries that have limited water availability, may be crucial to avoid excessive usage and depletion of global water resources.
    Keywords: Virtual Water, International Trade, Global Water Trade, Economic Devel- opment, Heckscher-Ohlin
    JEL: F14 F18 O13 Q25 Q27 Q56
    Date: 2018–05
  14. By: Fugazza, Marco; Olarreaga, Marcelo; Ugarte, Cristian
    Abstract: We examine the extent to which market-access barriers in Latin America affect small and large Peruvian exporters to the region. Using a dataset that allows us to distinguish between tariffs and different types of non-tariff measures introduced by Latin American countries between 2000 and 2014, we find that large Peruvian exporters benefit rather than lose from the introduction of tariffs and non-tariff measures in their destination markets. Their export value increases and the probability that they exit the export sector decreases as they face new market-access barriers abroad. The reverse is true for small exporters, which are hurt by more stringent market-access barriers.
    Keywords: Firm Heterogeneity; Non-Tariff-Measures; tariffs
    JEL: F13
    Date: 2018–04
  15. By: Andrew B. Bernard; Andreas Moxnes
    Abstract: Trade occurs between firms both across borders and within countries, and the vast majority of trade transactions includes at least one large firm with many trading partners. This paper reviews the literature on firm-to-firm connections in trade. A growing body of evidence coming from domestic and international transaction data has established empirical regularities which have inspired the development of new theories emphasizing firm heterogeneity among both buyers and suppliers in production networks. Theoretical work has considered both static and dynamic matching environments in a framework of many-to-many matching. The literature on trade and production networks is at an early stage, and there are a large number of unanswered empirical and theoretical questions.
    Keywords: international trade, production networks, offshoring, productivity
    JEL: F10 F12 F14 L11 L21
    Date: 2018–04
  16. By: Bonfiglioli, Alessandra; Crinò, Rosario; Gancia, Gino A
    Abstract: We use transaction-level US import data to compare firms from virtually all countries in the world competing in a single destination market. Guided by a simple theoretical framework, we decompose countries' market shares into the contribution of the number of firm-products, their average attributes (quality and efficiency) and heterogeneity around the mean. Our results show that the number of firm-products explains half of the variation in sales, while the remaining part is equally accounted for by average attributes and their dispersion. Quality is the main driver of firm heterogeneity (explaining between 75% and 100%). We then study how the distribution of firm-level characteristics varies across countries, and we explore some of its determinants. Countries with a larger market size tend to be characterized by a more dispersed distribution of firms' sales, especially due to heterogeneity in quality. These countries also tend to be more likely to host superstar firms, although this is not the only source of higher heterogeneity. To further explore the role of exceptional firms, we develop a novel decomposition that separates the contribution of heterogeneity from that of granularity. While individual firms matter, we find that heterogeneity is more important than granularity for explaining sales.
    Keywords: Firm Heterogeneity; granularity; International Trade; prices; Quality; US Imports; Variety
    JEL: F12 F14
    Date: 2018–03
  17. By: Matthew T. Cole; James Lake; Benjamin Zissimos
    Abstract: We develop a new theoretical framework of trade agreement (TA) formation, called a ‘parallel contest’, that emphasizes the political fight over TA ratification within countries. TA ratification is inherently uncertain in each country, where anti- and pro-trade interest groups contest each other to influence their own governments’ ratification decision. Unlike prior literature, the protection embodied in negotiated TA tariffs reflects a balance between the liberalizing force of lobbying and inherently protectionist government preferences. Moreover, new international political externalities emerge that are not internalized by governments that just internalize terms of trade externalities.
    Keywords: contests, international integration, trade agreement
    JEL: F02
    Date: 2018
  18. By: Sara Amoroso (European Commission - JRC); Pietro Moncada-Paterno-Castello (European Commission - JRC)
    Abstract: The unprecedented growth in FDI in the last decades has caused drastic changes in the labour markets of the host countries. The major part of FDI takes place in low tech industries, where the wages and skills are low, or in high tech, where they offer a wage premium for the highly skilled workers. This mechanism may increase the polarisation of employment into high-wage and low-wage jobs, at the expenses of middle-skill jobs. This paper looks at the effects of two types of FDI inflows, namely foreign investment in high-skill and low-skill activities, on skill polarization. We match data on greenfield FDI aggregated by country and sector with data on employment by occupational skill to investigate the extent to which differ types of greenfield FDI are responsible for skill polarisation.
    Keywords: Greenfield foreign direct investment, labour market, skills
    JEL: J21 J24
    Date: 2018–04
  19. By: Giovanni Dosi (Laboratory of Economics and Management); Andrea Roventini (Laboratory of Economics and Management (LEM)); Emmanuele Russo (Scuola Superiore Sant'Anna)
    Abstract: In this paper we present a multi-country, multi-industry agent-based model investigating the different growth patterns of interdependent economies. Each country features a Schumpeterian engine of endogenous technical change which interacts with Keyneasian/Kaldorian demand generation mechanisms. National growth trajectories are driven by firms’ accumulation of technological knowledge, which in turn also leads to emergent specialization patterns in different industries. Interactions among economies occur via trade flows, stemming from the competition of firms in international markets. Simulation results show the emergence of persistent income divergence among countries leading to polarization and club formation. Moreover, each country experiences a structural transformation of its productive structure during the development process. Such dynamics results from firm-level virtuous (or vicious) cycles between knowledge accumulation, trade performances, and growth dynamics. The model accounts for a rich ensemble of empirical regularities at macro, meso and micro levels of aggregation.
    Keywords: Endogenous growth; Structural change ; Technology gaps; Global divergence; Absolute advantages; Agent based models
    JEL: F41 F43 O4 O3
    Date: 2018–01
  20. By: Thomas I. Palley
    Abstract: The conventional wisdom is there have been two globalizations in the modern era. The first began around 1870 and ended in 1914. The second began in 1945 and is still underway. This paper challenges that view and argues there have been three globalizations, not two. The first half of the paper provides empirical evidence for the three globalizations hypothesis. The second half discusses the analytical implications of the three globalization hypothesis. The Victorian first globalization and Keynesian era second globalization were driven by gains from trade, and those gains increased industrialized country real wages. The neoliberal third globalization has been driven by industrial reorganization motivated by distributional conflict. Trade theory does not explain the third globalization; capital's share has increased at the expense of labor's; and there can be no presumption of mutually beneficial gains from the third globalization.
    Keywords: Globalization, trade theory, barge economics.
    Date: 2018
  21. By: Kun Jiang; Wolfgang Keller; Larry D. Qiu; William Ridley
    Abstract: This paper studies international joint ventures, where foreign direct investment is performed by a foreign and a domestic firm that together set up a new firm, the joint venture. Employing administrative data on all international joint ventures in China from 1998 to 2007—roughly a quarter of all international joint ventures in the world—we find, first, that Chinese firms chosen to be partners of foreign investors tend to be larger, more productive, and more likely subsidized than other Chinese firms. Second, there is substantial technology transfer both to the joint venture and to the Chinese joint venture partner, an external, intergenerational technology transfer effect that this paper introduces. Third, with technology spillovers typically outweighing negative competition effects, joint ventures generate on net positive externalities to other Chinese firms in the same industry. Joint venture externalities are large, perhaps twice the size of wholly-owned FDI spillovers, and it is R&D-intensive firms, including the joint ventures themselves, that benefit most from these externalities. Furthermore, the positive external joint venture effect is larger if the foreign firm is from the U.S. rather than from Japan or Hong Kong, Macau, and Taiwan, while this effect is virtually absent in broad sectors that include economic activities for which China’s FDI policy has prohibited joint ventures.
    JEL: F23 O31 O34
    Date: 2018–03
  22. By: Girum Abebe; Margaret S. McMillan; Michel Serafinelli
    Abstract: We quantify foreign direct investment (FDI) spillovers by comparing changes in total factor productivity (TFP) among domestic plants in districts that attracted a large greenfield foreign plant and districts where greenfield FDI was licensed but not yet operational. Treated and untreated districts have similar trends in TFP prior to the opening of the large greenfield foreign plant. Over the four years starting with the year of the opening, TFP of domestic plants is 8% higher in treated districts. Using an alternative identification strategy that exploits the assignment of land for FDI by the Ethiopian Government, we obtain similar results. Foreign plants also attract new economic activity to treated districts. Exposure to foreign firms enhances domestic firms’: (i) production processes; (ii) managerial and organizational practices; (iii) logistics and; (iv) knowledge about exporting. Knowledge transfer is more likely among labor or vertically linked firms but also occurs outside these channels.
    JEL: D24 F21 R10
    Date: 2018–03
  23. By: Peter H. Egger; Nora M. Strecker; Benedikt Zoller-Rydzek
    Abstract: Bargaining power may explain the tax differences between multinational and national enterprises beyond MNEs’ profit shifting. Larger firms (mostly MNEs) are more valuable for tax authorities for various reasons. In threatening relocation, larger firms extract greater deductions, resulting in a regressive ETR schedule and lower ETRs for size-related reasons. MNEs face lower relocation costs than NEs, which enhances their bargaining position. Using French firm-level data and entropy balancing, we find that the regressivity of the French tax schedule reduces MNEs’ ETRs by 2.52 percentage points (size effect), while their relocation threat leads to a 3.58 percentage point reduction.
    Keywords: profit taxation, multinational firms, entropy balancing
    JEL: H25 H26 F23 C21
    Date: 2018
  24. By: Xue Bai; Arpita Chatterjee; Kala Krishna; Hong Ma
    Abstract: Do minimum wages affect economic outcomes beyond low-skill employment? This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting to show that a binding minimum wage raises product prices, encourages substitution away from labor, and creates unemployment. It reduces output and exports of the labor intensive good, despite higher prices and, less obviously, selection in the labor (capital) intensive sector becomes stricter (weaker). Exploiting rich regional variation in minimum wages across Chinese prefectures and using Chinese Customs data matched with firm level production data, we find robust evidence in support of causal effects of minimum wage consistent with our theoretical predictions.
    JEL: H0
    Date: 2018–03
  25. By: Toshitaka Gokan (National Research University Higher School of Economics); Sergey Kichko (National Research University Higher School of Economics); Jacques-François Thisse (National Research University Higher School of Economics)
    Abstract: We show how trade and communication costs interact to shape the way firms organize their activities across space. We consider the following three organizational types: (i) integrated firms in which all activities are conducted at the same location, (ii) horizontal firms, which operate several plants producing the same good at different locations, and (iii) vertical firms, which perform distinct activities at separated locations. We find necessary and sufficient conditions for the three types of organization to coexist within the same country, whereas firms located in the other country are all spatially integrated. We then study how trade and communication costs affect firms’ organizational choices. First, lower trade costs lead to fewer firms going multinational. By contrast, less expensive communication flows leads to more investment abroad. The reason for this difference in results is that the two types of spatial frictions differ in nature: in the proximity-concentration trade-off, lower trade costs weaken the need for proximity, while lower communication costs foster deconcentration.
    Keywords: trade costs, communication costs, spatial fragmentation of firms
    JEL: F12 F21 R12
    Date: 2018
  26. By: Dohwa, Kohjiro
    Abstract: By constructing a two-country model with asymmetry in price-setting behavior between home and foreign intermediate goods firms, vertical production and trade, and endogenous entry of three types of final goods firms, we examine the effects of a reduction in the corporate tax rate of the home country. In particular, we focus on the role of asymmetry in price-setting behavior between home and foreign intermediate goods firms. We show that a reduction in home corporate tax rate yields the entry of foreign multinational firms, the exit of home multinational firms, the improvement in home welfare, and the deterioration in foreign welfare. In addition, when the ratio of home and/or foreign intermediate goods firms that set their export prices in the local currency rises, we show that the above effects are weakened.
    Keywords: Local currency pricing, Vertical production and trade, Firm entry, Foreign direct investment, Corporate tax reduction
    JEL: F41 F42
    Date: 2018–04–27
  27. By: Lee Branstetter; Britta Glennon; J. Bradford Jensen
    Abstract: The location of US multinational foreign R&D has shifted significantly to include emerging markets in addition to traditional Western R&D hubs, resulting in two challenges for multinationals: (1) how to transfer knowledge across geographic distances, and (2) how to facilitate learning when local knowledge sources in given technological areas are inadequate. This paper argues that to overcome these challenges, multinationals utilize home country inventors on foreign affiliate inventor teams – and in particular on teams in locations with insufficiently specialized local knowledge stocks – to facilitate knowledge transfer. Empirical analysis of a comprehensive dataset of US multinational R&D and patenting activity provides robust support for this argument. The findings have important implications for understanding how countries can gain expertise in technical areas and how poor countries can escape the knowledge trap, and they provide insight into management of increasingly dispersed multinational global R&D networks, particularly in locations with relatively unspecialized local inventors.
    JEL: O31 O32 O57
    Date: 2018–03
  28. By: Lionel Fontagné (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Gianluca Santoni (CEPII - Centre d'études prospectives et d'informations internationales)
    Date: 2018–04–22
  29. By: Harald Badinger (Department of Economics, Vienna University of Economics and Business)
    Abstract: This article summarizes a talk, given at the conference From Bretton Woods to Berlaymont: Globalisation, Integration and the Future of Europe, organized by KOF Swiss Economic Institute and ETH Zurich from 22-23 March 2018. It highlights the complexity and multidimensional nature of the question about the future development of the European Union. It argues that there is a need for rebalancing subsidiarity and supranationality, but that the assignment of tasks and the ‘optimal’ degree of centralization has to be judged on a case-by-case basis, differentiated by policy area. Moreover, it emphasizes the need to draw a line between what is desirable from a scientific perspective and can be judged by objective standards and what is desirable from a political perspective, which will vary a lot with political preferences. Finally, it argues that, at least in the short- to medium-run, economic integration should be given priority over political integration.
    Keywords: European Union, Institutions
    JEL: F02
    Date: 2018–04
  30. By: MORIKAWA Masayuki
    Abstract: Although there have been a number of studies that have applied the gravity model to migration and tourist flows, analyses covering both international and intranational movements have been scarce. This study, using unique official statistics for accommodation facilities in Japan, empirically analyzes the determinants of both international and intranational tourist flows. According to gravity model estimations, physical distance has a large, negative effect on tourist flows, but the quantitative magnitude of these effects differs little between foreign and domestic (interregional) tourists. The border effect on tourist flows is quantitatively large, and the number of tourists from foreign countries is more than 60% smaller than that from domestic ones. These results suggest that policies mitigating border barriers may contribute to a higher number of foreign tourists.
    Date: 2018–04
  31. By: Venables, Anthony J
    Abstract: External trade affects the internal spatial structure of an economy, promoting growth in some cities or regions and decline in others. Internal adjustment to these changes has often proved to be extremely slow and painful. This paper combines elements of urban and international economics to draw out the implications of trade shocks for city performance. Localisation economies in production of internationally tradable goods mean that cities divide into two types, those producing tradables and those specialising in sectors producing just for the national market (non-tradables). Negative trade shocks (and possibly also some positive ones) reduce the number of cities engaged in tradable production, increasing the number producing just non-tradables. This has a negative effect across all non-tradable cities, which lose population and land value. Remaining tradable cities boom, gaining population and land value. Depending on the initial position, city size dispersion may increase, this raising the share of urban land-rents in national income and reducing the share of labour.
    Keywords: de-industrialisation; globalisation; Polarisation; urban
    JEL: F12 R11 R12
    Date: 2018–04
  32. By: Hisahiro Naito and Mizuho Asai
    Abstract: This paper examines the effect of the presence of immigrants on the voters' behavior using the data set of the UK popular referendum on exit from the European Union and the survey data on individual tolerance toward immigrants. We apply two stage least square(2SLS) estimation to control the endogeneity of the ratio of immigrants by using the information on past industrial composition to construct the instrumental variable while including the current industry composition and the current demographic characteristics as a control variable. Contrary to popular media content, we do not find a statistically significant evidence that the ratio of immigrants in each electoral area does affect the vote count on Brexit after controlling endogeneity of the ratio of immigrants in each electoral area and other observable characteristics. We also show that the survey result on the tolerance to immigrants is consistent with the estimation result of voters' behavior.
    Date: 2018–02

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