nep-int New Economics Papers
on International Trade
Issue of 2018‒10‒01
twenty-six papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. China between external pressure and domestic policy reforms: In search of a balance By Langhammer, Rolf J.; Liu, Wan-Hsin
  2. Endogenous Market Structure and Trade By Larue, B.; Gonzalez, P.; Kempa Nangue, C.
  3. Duration of Export Relationships of Philippine MSMEs By Bautista, Mark Edison; Manzano, George
  4. Multinationals do not export jobs, and other related results By Kwok Tong Soo
  5. Tariff and U.S. Paper Products Trade By Zhang, Daowei; Nguyen, Ly
  6. Does FDI crowd out domestic investment in transition countries? By Cristina Jude
  7. Prices of Value Added and Competitiveness in Global Value Chains By Maciej Grodzicki
  8. Innovation, Firm Size Distribution, and Gains from Trade By Chen, Yi-Fan; Hsu, Wen-Tai; Peng, Shin-Kun
  9. The Economic Effects of Brexit - Evidence from the Stock Market By Holger Breinlich; Elsa Leromain; Dennis Novy; Thomas Sampson; Ahmed Usman
  10. Export Sophistication and Trade Elasticities By Willem THORBECKE; Nimesh SALIKE
  11. The Absence of Dynamic Gains from Free Trade in Agriculture: Implications for the Governance of Agricultural Trade and Development By Moon, W.; Pino, G.
  12. European Market for Mercosur Agricultural Exports: An econometric study of commodity trade flows By Niemi, J.
  13. Les relations commerciales agroalimentaires de la Russie avec l’Union européenne, l’embargo russe et les productions animales By Chatellier, Vincent; Pouch, Thierry; Le Roy, Cécile; Mathieu, Quentin
  14. Impact of ECOWAS Common External Tariffs on Food Security and Nutrition in West Africa By Durand-Morat, Alvaro; Diagne, Mandiaye; Wailes, Eric
  15. Does Foreign Direct Investment Lead to Industrial Agglomeration By Hsu, Wen-Tai; Lu, Yi; Luo, Xuan; Zhu, Lianming
  16. The Role of quality management in the context of the Transatlantic Trade and Investment Part nership (TTIP): the case of the polish Agri-food sector By Pietrzyck, Katja; Petersen, Brigitte; Jarzębowski, Sebastian
  17. Do Global Value Chains Amplify Global Imbalances? By Antonia López-Villavicencio; Valérie Mignon
  18. Commodity Trade Matters By Thibault Fally; James Sayre
  19. African migration to Europe \ By Abubakar Gidado Ibrahim
  20. Colombian export capabilities: building the firms-products network By Matteo Bruno; Fabio Saracco; Tiziano Squartini; Marco Due\~nas
  21. The Road to Mandalay: Global Capitalism and the Translational Identity of Burmese Chinese in Midi Z?s Films By Han-sheng Wang
  22. Trade and Immigration, 1870-2010 By David S. Jacks; John P. Tang
  23. Germany in fundamental macroeconomic disequilibrium - the external surplus By Jan Priewe
  24. Bilateral Trade Imbalances By Robert Zymek
  25. What Explains Austria’s Export Market Performance? By Philipp Heimberger
  26. An Aggregate View of Portuguese Exports and Competitiveness By Pedro Bação; António Portugal Duarte; Diogo Viveiros

  1. By: Langhammer, Rolf J.; Liu, Wan-Hsin
    Abstract: The authors reveal that on the one hand China alleviates inward FDI with a clear focus on promoting "quality" FDI with potential positive impacts also on local firms without direct investment relationships with multinational enterprises. On the other hand China lowers Most Favored Nation (MFN) tariffs and simultaneously retaliates against US penalty tariffs. They identify weaknesses of China's tariff policy which should be removed to avoid trade conflicts with its partners and primarily to foster its own economic transformation. The authors conclude that the escalation of trade conflicts can trigger protectionist measures from China and other countries, thus launching a race to the bottom against openness for international trade and investment.
    Keywords: China,FDI,trade,tariff,United States
    Date: 2018
  2. By: Larue, B.; Gonzalez, P.; Kempa Nangue, C.
    Abstract: Many agricultural products are exported from a small number countries and few export traders are typically involved. This is the case for maple syrup whose production takes place in eastern Canada and in the northeastern part of the United States. Corner solutions in oligopoly models usually arise because of asymmetries in trade and procurement costs. Such asymmetries can be ruled out in the case of Canadian and US maple syrup exports, yet many importing countries purchase only either from Canada or from the US. A theory of endogenous market structures based on duopoly competition with fixed costs is developed. It explains many stylized facts including that large markets have a higher probability of accommodating duopoly competition while smaller markets are more likely to “naturally” attract a single entrant or no entrant at all. A random parameter multinomial logit model is used to explain market structure and probability estimates are used to correct for potential selection biases in market-structure-specific gravity equations.
    Keywords: International Relations/Trade, Marketing
    Date: 2018–07
  3. By: Bautista, Mark Edison; Manzano, George
    Abstract: Within the framework of the Asia-Pacific Economic Cooperation (APEC) Boracay Action Agenda and the ASEAN Strategic Action Plan developed by its members to assist micro, small, and medium enterprises (MSMEs) to reach internationalization, the study examines the survivability of Philippines MSMEs' exports to select countries. The analysis is based on the survival analysis model of Besedeš and Prusa (2006a; 2006b) and Besedeš and Prusa (2008). Using the Kaplan Meier estimator model in both the MSME exports and the total trade data in documenting the survival rate of goods and duration of Philippine exported products, the study finds that most export relationships of the Philippines are brief, contrary to conventional trade theories which suggest that most trade relationships will be long-lived. Also, MSMEs, on average, account for a more significant number of export relations than large establishments. Furthermore, among MSMEs, it is the medium-sized firms that constitute the majority of export relations over different durations.
    Keywords: Philippines, micro, small, and medium enterprises, trade, MSMEs, survival analysis, duration, export survival, Philippine export
    Date: 2018
  4. By: Kwok Tong Soo
    Abstract: We develop a simple model of multinational firms, in which firms engage in production abroad to take advantage of cheap labour. There are gains from multinational firms beyond the standard gains from trade. The model makes two empirically testable predictions. First, firms with more foreign employment also have more domestic employment; multinationals are not net exporters of jobs. Second, the expansion of multinational activity will increase the overall size of the firm. We find that both predictions hold empirically, using a sample of the largest multinational firms. In addition, the presence of multinational firms raises welfare relative to when they are absent, although the proportional gain is not large.
    Keywords: Multinational firms, comparative advantage
    JEL: F12 F23
    Date: 2018
  5. By: Zhang, Daowei; Nguyen, Ly
    Abstract: In this paper we use the gravity model to study the effects of tariff on U.S. exports and imports of paper products that include paper, paperboard, and wood pulp. The results show that an increase in tariff would have a small, significant, and asymmetric impact on U.S. exports and imports of paper products. Furthermore, exchange rate, economic size of the U.S. and its trade partners, and U.S. internet use rate are found to be significant factors influencing U.S. paper products trade. These results show that the U.S. has some leverage in promoting free trade in paper products.
    Keywords: International Relations/Trade
    Date: 2018–01–18
  6. By: Cristina Jude
    Abstract: The aim of this paper is to empirically investigate the relationship between FDI and domestic investment in a sample of 10 Central and Eastern European countries over the period 1995-2015. We find FDI to lead to a creative destruction phenomenon, with a short-term crowding out effect on domestic investment, followed by a long-term crowding in. Greenfield FDI develops stronger long run complementarities with domestic investment, while mergers and acquisitions do not show a significant effect on domestic investment. Financial development seems to mitigate crowding out pressures and even foster a crowding in for mergers and acquisitions.
    Keywords: investment, FDI, crowding-out, economic transition, financial development.
    JEL: E22 F21 F43 O52
    Date: 2018
  7. By: Maciej Grodzicki (University of Bremen)
    Abstract: Measuring international competitiveness is a highly contested issue in contemporary economics. The emergence of global value chains limits the accuracy of traditional export-based measures and calls for the employment of techniques capable of accounting for value added input of individual economies into global production and trade. The paper aims to contribute to the global value chains literature by developing a framework both for distinguishing diverse modes of competitiveness and for the identification of successful cases of upgrading. It adapts an established method of export price comparisons to the context of global value chains and proposed a bi-dimensional technique based on the dynamics of the volumes and prices of GVC Income. As it concerns the technical side of the paper, it takes advantage of an input-output analysis and additive decomposition technique in order to disentangle the value-added-based measure of GVC Income, as well as the prices and volumes components of its dynamics. Empirical analysis, based on World Input-Output Database, demonstrates that countries differ significantly not only in terms of total GVC income dynamics, but also in terms of the modes chosen to build their competitive position in the global economy. In particular, upgrading throughout the period was achieved only by a few Central, Eastern European and emerging countries. The chances of successfully upgrading changed drastically in time, with the stage of the global business cycle and the balance between global demand and supply. In particular, catching-up possibilities by upgrading, strong in early 2000’s, decreased significantly after the Economic Crisis. The key reason, next to weak demand, that stands behind these developments is the impressive expansion of China, which has been on an upgrading path since 2005.
    Date: 2018–08
  8. By: Chen, Yi-Fan (Academia Sinica); Hsu, Wen-Tai (School of Economics, Singapore Management University); Peng, Shin-Kun (Academia Sinica)
    Abstract: We study a trade model with monopolistic competition a la Melitz (2003) that is standard except that firm heterogeneity is endogenously determined by firms innovating to enhance their productivities. We show that the equilibrium productivity and firm-size distributions exhibit power-law tails under rather general conditions on demand and technology. In particular, the emergence of the power laws is essentially independent of the underlying primitive heterogeneity among firms. We investigate the model’s welfare implications, and conduct a quantitative analysis of welfare gains from trade. We find that, conditional on the same trade elasticity and values of the common parameters, our model yields 40% higher welfare gains from trade than a standard model with exogenously given productivity distribution.
    Keywords: Innovation; Power law; Regular variation; Welfare gains from trade; Firm heterogeneity
    JEL: F12 F13 F41
    Date: 2018–09–04
  9. By: Holger Breinlich; Elsa Leromain; Dennis Novy; Thomas Sampson; Ahmed Usman
    Abstract: We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess investors’ expectations about the effects of leaving the European Union on the UK economy. Our results suggest that initial stock price movements were driven by fears of a cyclical downturn and by the sterling depreciation following the referendum. We also find tentative evidence that market reactions to two subsequent speeches by Theresa May (her Conservative Party conference and Lancaster House speeches) were more closely correlated with potential changes to tariffs and non-tariff barriers on UK-EU trade, indicating that investors may have updated their expectations in light of the possibility of a ‘hard Brexit’. We do not find a correlation between the share of EU migrants in different industries and stock market returns.
    Keywords: Brexit, depreciation, event study, recession, stock market, tariffs
    JEL: F15 F23 G14
    Date: 2018
  10. By: Willem THORBECKE; Nimesh SALIKE
    Abstract: Does a country's export structure impact the way that exchange rates affect trade? Do more sophisticated products exhibit lower demand elasticities? Using panel data for major exporters over the 1992-2016 period and dynamic ordinary least squares techniques, we find that price elasticities are higher for low-technology goods such as textiles and footwear than for high-technology goods such as pharmaceuticals and medical equipment. We also find that elasticities are larger for less advanced countries such as China than for more advanced countries such as Switzerland. We draw policy implications from these findings for countries exposed to safe haven capital flows, for countries facing long-term appreciation pressures, and for countries that specialize in low-technology exports.
    Date: 2018–09
  11. By: Moon, W.; Pino, G.
    Abstract: This study draws upon research in economics and agricultural economics to demonstrate that free trade in agriculture is not poised to bring about dynamic/productivity gains. That is in contrast to the mounting evidence of dynamic/productivity gains (in addition to the static gains) from free trade in manufacturing industries/firms. We show that the lack of the dynamic gains from agricultural trade is due to the passivity of farm producers in determining their productivity and international competitiveness. It is highlighted that it is neither free trade nor greater competitive pressure on farm producers but public investments for R&D/infrastructure/extension that would bring about improvements in productivity over time. Implications of the lack of the dynamic gains are discussed for governing agricultural trade and designing development strategies in food-importing low income countries.
    Keywords: Agricultural and Food Policy, International Relations/Trade
    Date: 2018–07
  12. By: Niemi, J.
    Abstract: The European Union (EU), which represents one of the world’s largest markets for raw materials and agricultural products, with imports of more than €113 billion in 2015, is a particularly attractive and very sought-after market for Mercosur exporters. This paper provides new evidence on income and price elasticities of demand for agricultural exports from Mercosur countries to the EU. The econometric analysis of the study is conducted with a sample of annual data which covers Mercosur’s major commodity exports to the EU from 1988 to 2015.The results indicate that for the eight commodities analysed there is a relatively weak demand response to income and price changes in the EU. The policy implication is that trade policy measures in the form of tariff and non-tariff barriers are not very significant in changing the quantity of imports demanded. However, the results suggest that relative-price variations affect significantly the demand for Mercosur agricultural exports, implying that the exporter’s market share is influenced by price competitiveness.
    Keywords: Agricultural and Food Policy, Demand and Price Analysis, International Relations/Trade
    Date: 2018–07
  13. By: Chatellier, Vincent; Pouch, Thierry; Le Roy, Cécile; Mathieu, Quentin
    Abstract: Russia has been for many years an important outlet for the European Union (EU) in the agri-food sector. Following the break-up of the Union of Soviet Socialist Republics (USSR) in 1991, Russian agriculture, which until then had been dominated by sovkhozes and kolkhozes, had suffered a drastic fall in domestic production, in particular in animal production. Over the past fifteen years, and due to a policy encouraging investment in agriculture, especially in agro-industrial complexes where the integration model prevails, agricultural production progressed rapidly, at least in certain sectors, including cereals, poultry meat and pork. This development of domestic supply and the diversification of supplier countries (including the United States, Brazil, etc.) had, even before the embargo imposed since August 2014, led to a substantial loss of European exports to Russia. Since the embargo was effective, Russia is no longer a privileged partner for European animal productions. Thanks to the growth of imports in several Asian countries, especially in China, several European animal sectors have nevertheless managed, despite the closure of the Russian market, to increase their exports. This paper deals, first of all, with the main stages of the Russian agricultural and trade policy, the development of agricultural production in this country, and the implementation of the embargo. Using customs statistics data (from BACI and COMEXT databases) over the period 2000 to 2016, it then discusses the evolution of trade flows following the implementation of the embargo, with particular emphasis on Russia's bilateral relations with the EU in four animal sectors: milk and milk products, beef and veal, poultry meat, and pork.
    Keywords: International Relations/Trade
    Date: 2018
  14. By: Durand-Morat, Alvaro; Diagne, Mandiaye; Wailes, Eric
    Abstract: Following the 2008 food crisis, West African governments have sought to achieve food security. Regional market integration is one element of this food security policy thrust. The Economic Community of West African countries (ECOWAS) is engaged in the creation of a Customs Union. Member countries negotiated a common external tariff (CET) currently under implementation. The CET is organized into five different tariff bands of 0, 5, 10, 20, and 35 percent to accommodate the large variations in protection granted across the region. The implementation of the CET represents a challenge to many individual ECOWAS countries since it may generate significant and potentially destabilizing welfare distribution impacts. The objective of this study is to evaluate the impact of ECOWAS CET on the rice sectors and the food security situation of member countries, and the spillover effects on the international market. Rice has become a dominant food staple and consequently West Africa has become the largest global rice-importing region, therefore it is important to understand likely impacts of regional integration on this sector. We use a supply-chain, partial, spatial equilibrium model of the global rice economy calibrated to the prevailing market conditions for the period 2013-2015. The findings highlight the impact of the CET on rice production, consumption, bilateral trade, and consumer, producer, and government welfare at the regional and global level, and the potential policy implications of such changes.
    Keywords: Agricultural and Food Policy
    Date: 2018–01–17
  15. By: Hsu, Wen-Tai (School of Economics, Singapore Management University); Lu, Yi (Tsinghua University); Luo, Xuan (INSEAD); Zhu, Lianming (Osaka University)
    Abstract: This paper studies the effect of foreign direct investment (FDI) on industrial agglomeration. Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI actually affects industrial agglomeration negatively. This result is somewhat counter-intuitive, as the conventional wisdom tends to suggest that FDI attracts domestic firms to cluster for various agglomeration benefits, in particular technology spillovers. To reconcile our empirical findings and the conventional wisdom, we develop a theory of FDI and agglomeration based on two counter-veiling forces. Technology diffusion from FDI attracts domestic firms to cluster, but fiercer competition drives firms away. Which force dominates depends on the scale of the economy. When the economy is sufficiently large, FDI discourages agglomeration. We find various evidence on this competition mechanism.
    Keywords: Industrial agglomeration; Ellison-Glaeser index; Competition; Foreign direct investment; Special economic zones; WTO; China
    Date: 2018–09–02
  16. By: Pietrzyck, Katja; Petersen, Brigitte; Jarzębowski, Sebastian
    Abstract: Since 2013, the European Union (EU) is negotiating with the United States of America (US) a Free Trade Agreement (FTA ), the Transatlantic Trade and Investment Partnership (TTI P). A controversial topic in the negotiations are the different quality standards in the agri-food sectors of both negotiating partners. In order to put into force a FTA all the EU Member States have to agree to the implementation of the contract. Poland has been a full EU Member State since 1 May 2004 and gained a strong position within the EU. Thus, the importance of this EU Member State is of great relevance to the EU’s trade policy. The main objective of this article is to analyse Poland’s trading position and its domestic interests. The study primarily aimed at investigating the awareness of the TTI P in the agri-food sector with focus on the quality standards of this industry. There has been no in-depth discussion of this sensitive issue within Polish companies of the sector, yet. In particular, the study identified an uncertainty regarding the application and interpretation of international standards in cross-border customersupplier relationships of food supply chains. For this reason, it is recommended to define these uncertainties and develop proposals for the harmonization and exploitation of synergies. In summary, the results have relevance for the sector.
    Keywords: Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Food Security and Poverty
    Date: 2018
  17. By: Antonia López-Villavicencio; Valérie Mignon
    Abstract: This paper addresses the impact of countries' participation in global value chains (GVCs) on their current account balances. Relying on a panel of 57 advanced and emerging countries, we do not fi nd evidence that GVC participation directly raises economies' current account positions. On the contrary, we show that backward participation makes a negative contribution to current account balances: our results contradict the speculation that current account imbalances of downstream countries are likely to benefi t more from GVC participation than economies which are located further upstream. Moreover, we show that there is no signifi cant indirect effect of GVC on the current account operating through the exchange rate. Finally, our fi ndings indicate that whereas GVC participation boosts exports, this increase is not accompanied by improvements in price competitiveness, nor by higher levels of saving rates.
    Keywords: Global Value Chains;Current Account Imbalances
    JEL: F32 F40
    Date: 2018–09
  18. By: Thibault Fally; James Sayre
    Abstract: Primary commodities are used as inputs into all production processes, yet they account for approximately 16 percent of world trade. Despite their share in trade, we show that the aggregate gains from trade are largely understated if we ignore key features of commodities: low price elasticities of demand (difficulty in finding substitutes), low price elasticities of supply, and high dispersion of natural resources across countries. We develop a general-equilibrium model of consumption, production, and input-output linkages that explicitly accounts for these features. Our simulations confirm that the gains from trade are significantly larger, especially when considering large trade cost changes.
    JEL: F10 O13
    Date: 2018–08
  19. By: Abubakar Gidado Ibrahim (Umaru Ali Shinkafi polytechnic sokoto)
    Abstract: This paper seek to focused on the challenges and dangerous journey many African migrants make across the Saharan desert and the dangerous trip they make by boat to island in the Mediterranean Sea, Atlantic Ocean and Saharan desert to Europe in search of what they think would be a better and easier living conditions. It's a journey that begins with full hope but often end in disastrous way. Many African migrants died on their way to Europe. The migrants have full hopes and aspirations of a better life in Europe a place they knew nothing about. Migration of African to Europe is commonly seen as a movement of desperate young African fleeing from unemployment, political uncertainty, economics recession, conflicts and widespread poverty. The paper finding revealed that young African men and women are highly ambitious by big dreams, higher wishes, fantasies and demand from family and friends to make it in Europe. There are more international migrants today than ever before, so therefore movement is on daily basis now. And the number of migrants is multiplying for the predictable future. Migration can also be seen as one of the effective factors in this period of globalization which helps in the exchange of money and commodities coupled with free flow of ideas and information. This study is purely based on secondary sources of data. The data was obtained from reference books, published reports of World Bank, European Union data, Newspapers and broadcasting media. The paper also made some recommendations there in.
    Keywords: Migration, African migrants, Europe, Mediterranean Sea, Saharan Desert, Boat Atlantic Ocean European Union and IOM.
    Date: 2018–06
  20. By: Matteo Bruno; Fabio Saracco; Tiziano Squartini; Marco Due\~nas
    Abstract: In this paper we analyse the bipartite Colombian firms-products network, throughout a period of five years, from 2010 to 2014. Our analysis depicts a strongly modular system, with several groups of firms specializing in the export of specific categories of products. These clusters have been detected by running the bipartite variant of the traditional modularity maximization, revealing a bi-modular structure. Interestingly, this finding is refined by applying a recently-proposed algorithm for projecting bipartite networks on the layer of interest and, then, running the Louvain algorithm on the resulting monopartite representations. Upon comparing the results of our study with the ones obtained by analysing the World Trade Web, important structural differences emerge, in particular, the bipartite representation of the latter is not characterized by a similar block-structure, as the modularity maximization fails in revealing (bipartite) nodes clusters. This points out that economic systems behave differently at different scales: while countries tend to diversify their production - potentially exporting a large number of different products - firms specialize in exporting (substantially very limited) baskets of basically homogeneous products.
    Date: 2018–09
  21. By: Han-sheng Wang (Department of Modern Languages, National Pingtung University of Science and Technology, Taiwan)
    Abstract: The concept of ?Chinese-ness? has been questioned and renounced for endorsing a hegemonic, Han-centric construction of overseas Chinese identity, overlooking the already multiple, localized experiences facing diasporic subjects nowadays. In this new light, the many distinct experiences of Chinese settlers and their descendants in Southeastern Asian countries need to be re-examined. For instance, the development of global capitalism in this region has complicated the formation of ethnic Chinese identity over the past decades. On the one hand, ethnic Chinese settling in these countries may have been pushed by the unequal social, political, and economic treatments to re-migrate to neighboring countries for better opportunities. On the other hand, the acceleration of globalization, together with the on-going process of democratization and modernization in Southeastern Asia, has made these settlements an increasingly appealing homeland to the descendants of ethnic Chinese, who have gradually assimilated into the host community. This paper thus wants to explore the creolization and translatability of young Burmese Chinese?s identities as shown in the Burma-born Taiwanese director Midi Z?s trilogy of ?returning home? entitled Return to Burma (2011), Poor Folk (2012), and Ice Poison (2014) and his 2016 The Road to Mandalay. In Midi?s series of films on leaving and returning home, this paper will trace young Burmese Chinese?s transnational migration triggered by global capitalism and address the conflict and negotiation of identity resulting from such migration.
    Keywords: Burmese Chinese, global capitalism, Midi Z, translational identity
    Date: 2018–06
  22. By: David S. Jacks; John P. Tang
    Abstract: In this chapter, we describe long-run trends in global merchandise trade and immigration from 1870 to 2010. We revisit the reasons why these two forces moved largely in parallel in the decades leading up to World War I, collapsed during the interwar period, and then rebounded (but with much more pronounced growth in trade than in immigration). More substantively, we also document a large redistribution in the regional sources of goods and people with a shift from the former industrialized core countries—especially Europe—to those in the former periphery—especially Asia—as well as a very striking change in the composition of merchandise trade towards manufactured goods precisely dating from 1950. Finally, using a triple differences framework in combination with a dramatic change in US immigration policy, we find evidence that immigration and trade potentially acted as substitutes, at least for the United States in the interwar period.
    JEL: F10 N30 N70
    Date: 2018–09
  23. By: Jan Priewe
    Abstract: Despite performing very positively on some key macroeconomic indicators in recent years, the German economy is in grave disequilibrium if the high current account surplus is included in the analysis. The paper scrutinises the evolution of Germany's external surplus since the inception of the Euro in 1999. This is done by identifying the main determinants of exports and imports and by analysing the accounting identity in which the current account is national saving less total fixed investment. While price competitiveness measured by real exchange rates is strongly improved by German imports for exports within international value chains, also by real undervaluation against other member countries, the focus is on the combination of price- and non-price competitiveness. The latter is mainly determined by the global income elasticity for imports from Germany, relative to the income elasticity for imports to Germany. Despite heavy fluctuations, the past trend shows a clear wedge between the growth of exports and imports of almost one percentage point. If this trend continues the German trade balance would reach 15% of GDP in 2026 which would be a time bomb for the cohesion of the European Monetary Union. Market-based rebalancing is not in sight. It is the built-in dynamics of the external surplus that is hazardous. The problem is aggravated as Germany sits in the same boat with three other hard-core surplus seeking countries (Netherlands, Ireland, Luxembourg). In recent years the imbalances within EMU have changed, pulling former deficit countries in mild surplus but leaving the diversity of current account balances among EMU members at a spread of 8-10 percentage points, with an external trade surplus of EMU as a whole of 4.5% and 3.5% current account surplus. Germany carries nearly 77% and 55% of the current account and the trade surplus, respectively, and has - far ahead others - become the largest surplus country on the globe, in absolute terms. This constellation is unsustainable and requires policy action in Germany, in the European Union, the Euro Area and also by global authorities.
    Keywords: balance of payments, global imbalances, real exchange rates, competitiveness, European Monetary Union
    JEL: E5 E6 F14 F15 F41 F42
    Date: 2018
  24. By: Robert Zymek (University of Edinburgh)
    Abstract: In standard quantitative models, bilateral trade imbalances are determined by aggregate trade imbalances, expenditure and production patterns, and trade wedges. We calibrate such a model using recent data on incomes, factor endowments, and sector-level expenditures, outputs and bilateral trade flows for 40 economies and the rest of the world. Large pairwise asymmetries in trade wedges are needed for the model’s bilateral-trade predictions to match the data. They account for 21-35% of the standard deviation of bilateral trade imbalances. Aggregate imbalances play a minor role, while more than 50% of the variation is explained by international differences in production and expenditure patterns.
    Date: 2018
  25. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses Austria’s export market performance by exploring four channels that can impact on exports a) cost competitiveness, b) ties to trading partners through their demand for import goods, c) global investment demand, and d) offshoring of goods production. By using cointegration analysis and error corrections, we estimate an export model based on quarterly data over the time period 1997-2016. The main results underscore that it is not only price competitiveness that influences Austria’s export performance, as global export demand and trading partners’ demand for capital goods are shown to have a significant long-run impact on Austrian goods exports. Cost competitiveness does play a role in determining export market performance, but over the last twenty years the relative contributions of changes in the real effective exchange rate based on unit labour costs to export growth are shown to be relatively small. While Austria’s international competitiveness has only recorded small variations since the financial crisis, this paper provides evidence that lower export growth and the falling global export market share of goods since 2007 largely reflect relatively weak economic activity of many of Austria’s important trading partners including Eastern Europe.
    Keywords: competitiveness, export performance, exports, trade, Austria, Europe
    JEL: B5
    Date: 2018–09
  26. By: Pedro Bação (CeBER - Centre for Business and Economics Research); António Portugal Duarte (CeBER - Centre for Business and Economics Research); Diogo Viveiros (Banco de Portugal)
    Abstract: The purpose of this paper is to study the relation between Portuguese exports of goods and a set of variables that theoretical models suggest as the main determinants of export behavior.Given that the exchange rate is one of the key variables identified by the theoretical models, we begin by reviewing the evolution of Portugal’s exchange rate policy between the 1977 and 1999, when Portugal joined the European Monetary Union. In addition, we discuss how the exchange rate policy has been related to the issue of competitiveness of Portuguese firms. We then present the theoretical models and proceed to an empirical analysis of their adequacy.The results of our empirical analysis indicate that the perfect competition model does not provide an acceptable representation of the behavior of Portugal's exports of goods. The result s improve when the monopolistic competition model is estimated. The estimation of a modified version of the monopolistic competition model suggests that Portugal's exports of goods are very elastic with respect to demand and productivity, but very inelastic with respect to wages. Nevertheless, certain variables are not significant, which indicates that there are problems to be solved either in the theoretical framework or in the empirical approach.The estimates reported support the conclusion that to foster exports a focus on wage costs and on exchange rate fluctuations is probably inefficient or even misguided. Productivity and demand seem to be more important determinants of exports. If one believes in this conclusion, then views of competitiveness based on the importance of wage repression or exchange rate control must be revised.
    Keywords: competitiveness, exchange rate, exports, productivity, wages.
    JEL: D24 F11 F14 F31

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