nep-int New Economics Papers
on International Trade
Issue of 2019‒02‒04
39 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. The effects of natural disasters and weather variations on international trade: A review of the empirical literature By Osberghaus, Daniel
  2. The not-so-generalized effects of the generalized system of preferences By Ornelas, Emanuel; Ritel, Marcos
  3. Technology, market structure and the gains from trade By Impullitti, Giammario; Licandro, Omar; Rendhal, Pontus
  4. The effect of the single currency on exports: Comparative firm-level evidence By Lalinsky, Tibor; Meriküll, Jaanika
  5. Determinants of Foreign Direct Investment in Fast-Growing Economies: Evidence from the BRICS and MINT Countries By Asongu, Simplice; Akpan, Uduak; Isihak, Salisu
  6. Preferential trade agreements and global sourcing By Bickwit, Grant; Ornelas, Emanuel; Turner, John L.
  7. Innovation and trade policy in a globalized world By Akcigit, Ufuk; Ates, Sina T.; Impullitti, Giammario
  8. The Structure of Multinational Sales under Demand Risk By Francesco Paolo Conteduca; Ekaterina Kazakova
  9. Firms and Economic Performance: A View from Trade By Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
  10. Does domestic demand matter for firms’ exports? By Miguel Portela; António Rua; Paulo Esteves
  11. Organizing global supply chains: input costs shares and vertical integration By Berlingieri, Giuseppe; Pisch, Frank; Steinwender, Claudia
  12. The political economy of trade and migration: evidence from the U.S. Congress By Conconi, Paola; Facchini, Giovanni; Steinhardt, Max F.; Zanardi, Maurizio
  13. Schooling Forsaken: Education and Migration By Abdulloev, Ilhom; Epstein, Gil S.; Gang, Ira N.
  14. Regional Migration and Wage Inequality in the West African Economic and Monetary Union By Girsberger, Esther Mirjam; Meango, Romuald; Rapoport, Hillel
  15. Labour market power and the distorting effects of international trade By Mertens, Matthias
  16. Priority Roads: the Political Economy of Africa's Interior-to-Coast Roads By Roberto Bonfatti; Yuan Gu; Steven (S.) Poelhekke
  17. Entering a foreign market: Exports, FDI or strategic alliance? By Morasch, Karl
  18. The economic effects of Brexit- evidence from the stock market By Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas; Usman, Ahmed
  19. Market potential and global growth over the long twentieth century By Jacks, David S.; Novy, Dennis
  20. Investment provisions in preferential trade agreements: Evolution and current trends By Crawford, Jo-Ann; Kotschwar, Barbara
  21. Of mice and merchants: trade and growth in the Iron Age By Bakker, Jan David; Maurer, Stephan; Pischke, Jörn-Steffen; Rauch, Ferdinand
  22. Agent Orange: Trump, Soft Power, and Exports By Andrew K. Rose
  23. The effect of the Brexit referendum result on subjective well-being By Kavetsos, Georgios; Kawachi, Ichiro; Kyriopoulos, Ilias; Vandoros, Sotiris
  24. The contribution of foreign migration to local labor market adjustment By Amior, Michael
  25. Offshoring and Skill-upgrading in French Manufacturing By Juan Carluccio; Alejandro Cuñat; Harald Fadinger; Christian Fons-Rosen
  26. Gender-related provisions in regional trade agreements By Monteiro, José-Antonio
  27. Export Take-Offs and Acceleration: Unpacking Cross-Sector Linkages in the Evolution of Comparative Advantage By Bahar, Dany; Rosenow, Samuel; Stein, Ernesto; Wagner, Rodrigo Andres
  28. Labor Market Impacts of States Issuing of Driving Licenses to Undocumented Immigrants By Amuedo-Dorantes, Catalina; Arenas-Arroyo, Esther; Sevilla, Almudena
  29. A new causality test for the analysis of the export-growth nexus By Furuoka, Fumitaka
  30. International crop trade networks: The impact of shocks and cascades By Rebekka Burkholz; Frank Schweitzer
  31. A German view on the Baltic Sea region By Laaser, Claus-Friedrich; Schrader, Klaus
  32. Exchange rate and trade balance linkage: evidence from Malaysia based on ARDL and NARDL By Adznan, Syaima; Masih, Mansur
  33. Emigration and Alcohol Consumption among Migrant Household Members Staying Behind: Evidence from Kyrgyzstan By Paulone, Sara; Ivlevs, Artjoms
  34. Terms of Trade Effects of Productivity Shocks and Economic Development By Özçelik, Emre; Tuğan, Mustafa
  35. An evaluation of the trade relationship between South Africa and China: An empirical review 1995-2014 By Simbarashe Mhaka; Leward Jeke
  36. On the General Impossibility of Persistent Unequal Exchange Free Trade Equilibria in the Pre-industrial World Economy By Kaneko, Soh; Yoshihara, Naoki
  37. The Belt and Road Initiative. Demographic trends, labour markets and welfare systems of member countries By Bruni, Michele
  38. Immigrants’ over-education and wage penalty. Evidence from Uruguay By Luciana Méndez-Errico
  39. The Impact of Mass Migration of Syrians on the Turkish Labor Market By Aksu, Ege; Erzan, Refik; Kirdar, Murat G.

  1. By: Osberghaus, Daniel
    Abstract: This review summarizes the empirical literature on the effects of natural disasters and weather variations on international trade flows. A first result is that the body of literature is actually not as small as previously suggested. In total, I summarize 19 studies of 18 independent research teams and show that there is a large diversity in terms of motivations, data sets used, methodologies, and results. Still, some overarching conclusions can be drawn. Increases in average temperature seem to have a detrimental effect on export values (less on imports), mainly for manufactured and agricultural products. Given climate change, this is an important finding for projecting long-term developments of trade volumes. Imports seem to be less affected by temperature changes in the importing country. Findings on the effects of natural disasters are more ambiguous, but at least it can be said that exports seem to be affected negatively by occurrence and severity of disasters in the exporting country. Imports may decrease, increase, or remain unaffected by natural disasters. Regarding heterogeneous effects, small, poor, and hot countries with low degrees of institutional quality and political freedom seem to face the most detrimental effects on their trade flows. Possible directions of future research include analyzing spillover effects in-depth (in terms of time, space, and trade networks), considering adaptation, and using more granular data.
    Keywords: International Trade,Climate Change,Natural Disasters
    JEL: Q17 Q54 Q56 F14 F18
    Date: 2019
  2. By: Ornelas, Emanuel; Ritel, Marcos
    Abstract: We use an empirical gravity equation approach to study how nonreciprocal trade preferences (NRTPs), enacted mainly through the Generalized System of Preferences, affect the exports of the beneficiary nations. In line with existing studies, the average trade effect stemming from nonreciprocal preferences is highly unstable across specifications. However, once we allow for heterogeneous effects, results become robust and economically important. Specifically, NRTPs have a strong effect on the exports of beneficiaries when they are members of the World Trade Organization and are very poor. Not-so-poor beneficiaries also expand foreign sales, but only if they are not WTO members. For all others, the average export effects of NRTPs are mute.
    Keywords: trade preferences; gravity equation; trade policy; nonreciprocity; GSP
    JEL: F13 F14 F15 F5 O19 O24
    Date: 2018–10
  3. By: Impullitti, Giammario; Licandro, Omar; Rendhal, Pontus
    Abstract: We study the gains from trade in a new model with oligopolistic competition, firm heterogeneity, and innovation. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Trade liberalisation can also reduce the number of firms competing in each market, thereby increasing markups on both domestic and export sales. For the majority of exporters, however, the pro- competitive effect prevails and their average markups decline. The incomplete pass-though and the reduction in the number of competitors instead dominate for top-exporters – the top 0.1% of firms – which end up increasing their markup. In a quantitative exercise we find that the aggregate effect of trade-induced markup changes is pro-competitive and accounts for the majority of the welfare gains from trade. Trade-induced changes in competition affect survival on domestic and export markets and firms’ decision to innovate. All exporters, and especially the top exporters, increase their market size after liberalisation which, in turn, encourages them to innovate more. Hence, top exporters contribute negatively to welfare gains by increasing their markups but positively by increasing innovation and productivity. Firms’ innovation response accounts for a small but non-negligible share of the welfare gains while the contribution of selection is U-shaped, being negative for small liberalisations and positive otherwise. A more globalised economy is therefore populated by larger, fewer and more innovative firms, each feature representing an important source of the gains from trade.
    Keywords: gains from trade; heterogeneous firms; oligopoly; innovation; endogenous markups; endogenous market structure
    JEL: F12 F13 O31 O41
    Date: 2018–12
  4. By: Lalinsky, Tibor; Meriküll, Jaanika
    Abstract: We investigate how adopting the euro affects exports using firm-level data from Slovakia and Estonia. In contrast to previous studies, we focus on countries that adopted the euro individually and had different exchange rate regimes prior to doing so. Following the New Trade Theory we consider three types of adjustment: firm selection, changes in product varieties and changes in the average value of the exports that compose the exports of individual firms. The euro effect is identified by a difference in differences analysis comparing exports by firms to the euro area countries with exports to the EU countries that are not members of the euro area. The results highlight the importance of the transaction costs channel related to exchange rate volatility. We find the euro has a strong pro-trade effect in Slovakia, which switched to the euro from a floating exchange rate, while it has almost no effect in Estonia, which had a fixed exchange rate to the euro prior to the euro changeover. Our findings indicate that the euro effect manifested itself mainly through the intensive margin and that the gains from trade were heterogeneous across firm characteristics.
    Keywords: international trade,common currency areas,euro adoption,transaction costs,Slovakia,Estonia,firm-level data
    JEL: F14 F15
    Date: 2019
  5. By: Asongu, Simplice; Akpan, Uduak; Isihak, Salisu
    Abstract: This study employs panel analysis to examine the determinants of foreign direct investment (FDI) to Brazil, Russia, India, China, and South Africa (BRICS) and Mexico, Indonesia, Nigeria, and Turkey (MINT) using data for eleven years i.e. 2001 – 2011. First, it uses pooled time-series cross sectional analysis to estimate the model on determinants of FDI for three samples: BRICS only, MINT only, and BRICS and MINT combined; then, fixed effects model is also employed to estimate the model for BRICS and MINT combined. The results show that market size, infrastructure availability, and trade openness play the most significant roles in attracting FDI to BRICS and MINT while the roles of availability of natural resources and institutional quality are insignificant. Given that FDI inflow to a country has the potential of being mutually beneficial to the investing entity and host government, the challenge is on how BRICS and MINT can sustain the level of FDI inflow and ensure it results in economic growth and socio-economic transformation. To sustain the level of FDI inflow, governments of BRICS and MINT need to ensure that their countries remain attractive for investment. BRICS and MINT also need to ensure that their economies absorb substantial skills and technology spillovers from FDI inflow to promote sustainable long-term economic growth by investing more in their human capital. The study is significant because it contributes to literature on determinants of FDI by extending the scope of previous studies which often focus only on BRICS.
    Keywords: FDI, determinants, fast-growing economies, BRICS, MINT
    JEL: C52 F21 F23 O40 P37
    Date: 2018–01
  6. By: Bickwit, Grant; Ornelas, Emanuel; Turner, John L.
    Abstract: We study how a preferential trade agreement (PTA) affects international sourcing decisions, aggregate productivity and welfare under incomplete contracting and endogenous matching. Contract incompleteness implies underinvestment. That inefficiency is mitigated by a PTA, because the agreement allows the parties in a vertical chain to internalize a larger return from the investment. This raises aggregate productivity. On the other hand, the agreement yields sourcing diversion. More efficient suppliers tilt the tradeoff toward the (potentially) beneficial relationship-strengthening effect; a high external tariff tips it toward harmful sourcing diversion. A PTA also affects the structure of vertical chains in the economy. As tariff preferences attract too many matches to the bloc, the average productivity of the industry tends to fall. When the agreement incorporates "deep integration" provisions, it boosts trade flows, but not necessarily welfare. Rather, "deep integration" improves upon "shallow integration" if and only if the original investment inefficiencies are serious enough. On the whole, we offer a new framework to study the benefits and costs from preferential liberalization in the context of global sourcing.
    Keywords: regionalism; hold-up problem; sourcing; trade diversion; matching; incomplete contracts
    JEL: D23 D83 F13 F15 L22
    Date: 2018–10
  7. By: Akcigit, Ufuk; Ates, Sina T.; Impullitti, Giammario
    Abstract: How do import tariffs and R&D subsidies help domestic firms compete globally? How do these policies affect aggregate growth and economic welfare? To answer these questions, we build a dynamic general equilibrium growth model where firm innovation endogenously determines the dynamics of technology, market leadership, and trade flows, in a world with two large open economies at different stages of development. Firms’ R&D decisions are driven by (i) the defensive innovation motive, (ii) the expansionary innovation motive, and (iii) technology spillovers. The theoretical investigation illustrates that, statically, globalization (defined as reduced trade barriers) has ambiguous effects on welfare, while, dynamically, intensified globalization boosts domestic innovation through induced international competition. Accounting for transitional dynamics, we use our model for policy evaluation and compute optimal policies over different time horizons. The model suggests that the introduction of the Research and Experimentation Tax Credit in 1981 proves to be an effective policy response to foreign competition, generating substantial welfare gains in the long run. A counterfactual exercise shows that increasing tariffs as an alternative policy response improves domestic welfare only when the policymaker cares about the very short run, and only when introduced unilaterally. Tariffs generate large welfare losses in the medium and long run, or when there is retaliation by the foreign economy. Protectionist measures generate large dynamic losses by distorting the impact of openness on innovation incentives and productivity growth. Finally, our model predicts that a more globalized world entails less government intervention, thanks to innovation-stimulating effects of intensified international competition.
    Keywords: economic growth; short- and long run gains from globalization; foreign technological catching-up; innovation policy; trade policy; competition
    JEL: F13 F43 O40
    Date: 2018–12
  8. By: Francesco Paolo Conteduca; Ekaterina Kazakova
    Abstract: This paper analyzes the effects of demand risk on the location and sales structure of multinational firms. We build a structural model of horizontal FDI with firms that are heterogeneous in terms of risk aversion and productivity. Firms decide on the location of their production plants, the set of countries to serve from these plants, and the volume of sales for each plant. These decisions hinge both on the expected demand for each market and the correlation structure of demand realizations across destination markets. Ceteris paribus, markets that offer better hedging opportunities to multinationals induce larger sales and are more attractive locations for production. We use firm-level data for German multinational companies to estimate firm-specific risk aversion coefficients as well as other model parameters. We find that multinationals are heterogeneously risk averse. Finally, in a counterfactual analysis, we show how a reduction in tariffs for goods imported into China changes the trade flows to the other countries, the sign of the change depending on the correlation structure.
    Keywords: FDI, Multinational Enterprise, Demand Risk, Risk Aversion, Export Platform
    JEL: F12 F23 L23
    Date: 2018–04
  9. By: Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
    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. To further explore the role of exceptional firms, we also develop a novel decomposition that separates the contribution of heterogeneity from that of granularity. 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. While individual firms matter, we find that heterogeneity is more important than granularity for explaining sales. 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.
    Keywords: US imports, firm heterogeneity, international trade, prices, quality, variety, granularity
    JEL: F12 F14
    Date: 2019
  10. By: Miguel Portela; António Rua; Paulo Esteves
    Abstract: The existence of a link between exports and domestic demand challenges the standard theoretical assumption in international trade models and carries out important policy implications. Being a small open economy and one of the hardest hit economies during the latest economic and financial crisis, Portugal is a natural case study for assessing the role of this channel, in particular given the large export market share gains that mitigated the negative effects on economic activity. A key difference of our empirical approach vis-à-vis previous literature is that the estimated relationship between exports and domestic sales results directly from a monopolistic model of a firm selling to both domestic and external markets. Drawing on an appropriate estimation strategy, it is found a noteworthy negative relationship between domestic demand and firms’ exports covering the manufacturing sector over the period 2009–2016. This result holds for almost all industries although with a heterogeneous magnitude. Additionally, there is also evidence that this effect is stronger for larger firms.
    JEL: C33 D21 D22 F14 F41
    Date: 2018
  11. By: Berlingieri, Giuseppe; Pisch, Frank; Steinwender, Claudia
    Abstract: We study whether and how the technological importance of an input – measured by its cost share – is related to the decision of whether to “make” or “buy” that input. Using detailed French international trade data and an instrumental variable approach based on self-constructed IO tables, we show that French multinationals vertically integrate those inputs that have high cost shares. A stylized incomplete contracting model with both ex ante and ex post inefficiencies explains why: technologically more important inputs are “made” when transaction cost economics type forces (TCE; favoring integration) overpower property rights type forces (PRT; favouring outsourcing). Additional results related to the contracting environment and headquarters intensity consistent with our theoretical framework show that both TCE and PRT type forces are needed to fully explain the empirical patterns in the data.
    Keywords: vertical integration; supply chains; direct requirements; input output relationship; intrafirm trade
    JEL: F10 F14 L16 L23 O14
    Date: 2018–11
  12. By: Conconi, Paola; Facchini, Giovanni; Steinhardt, Max F.; Zanardi, Maurizio
    Abstract: We systematically examine the drivers of U.S. congressmen's votes on trade and migration reforms since the 1970's. Standard trade theory suggests that reforms that lower barriers to goods and migrants should have similar distributional effects, hurting low-skilled U.S. workers while benefiting high-skilled workers. In line with this prediction, we find that House members representing more skilled labor abundant districts are more likely to support both trade and migration liberalization. Still, important differences exist: Democrats favor trade reforms less than Republicans, while the opposite is true for immigration reforms; welfare state considerations and network effects shape support for immigration, but not for trade.
    Keywords: trade reforms; immigration reforms; roll-call votes
    JEL: F1 F22
    Date: 2018–08
  13. By: Abdulloev, Ilhom (Open Society Institute Assistance Foundation, Tajikistan); Epstein, Gil S. (Bar-Ilan University); Gang, Ira N. (Rutgers University)
    Abstract: We examine the phenomenon of forsaken schooling resulting from opportunities abroad. The brain-drain/gain literature takes as its starting point the migration of educated/professional labor from poor origin countries to richer host countries. While high-skilled migration is worrisome, many international migrants accept low-skilled positions in host countries. Their willingness to do so arises from very large host-home earnings differentials. At home this can lead to reduced educational investment as people forgo schooling because of opportunities to migrate to high paying low-skilled jobs. This suggests possible time-inconsistencies between short-run economic gains from migration and negative long-term effects from missing human-capital investment. We analyze data from Tajikistan, where approximately one-third of the labor force works outside of the country. We offer an explanation of our empirical results with a theoretical model, allowing us to establish the circumstances under which this type of forsaken schooling can occur and the trade-offs that policymakers' need consider.
    Keywords: migration, traps, poverty, inequality, education, skill
    JEL: O15 P46 F22 I24
    Date: 2019–01
  14. By: Girsberger, Esther Mirjam (University of Technology, Sydney); Meango, Romuald (Max Planck Institute for Social Law and Social Policy); Rapoport, Hillel (Paris School of Economics)
    Abstract: We investigate the impact of regional migration on average wages and on wage inequality in the West African Economic and Monetary Union (UEMOA). We exploit unique data from a unified labour force household survey which covers natives and migrants in the seven economic capitals of the region. We first estimate the counterfactual wage distributions of UEMOA migrants in absence of migration to evaluate the effect of regional migration when the effect of migration is purely compositional (i.e., when wages are treated as exogenous). We find that regional migration increases average wages by 1.8% and entails a decrease in inequality that ranges between -1.5% (for the Gini index) and -4.5% (for the interquartile ratio). This is essentially driven by a reduction in inequality between countries, while the effect of migration on within-country inequality is heterogeneous across countries and remains small overall. Second, when accounting for possible general equilibrium effects of migration on stayers' wages, we find similar to stronger effects on inequality, albeit with a smaller increase in average wages. The later result is due primarily to the fact that we now account for the predominant pattern of migrants' negative to intermediate self-selection, which tends to depress natives' wages at destination while only mildly affecting wages at home. The former result is due to the fact that regional migration in the UEMOA takes place mostly from low-wage to high-wage countries, which in combination with the general equilibrium effects described above, leads to a larger decrease in between-country inequality than in a setting with exogenous wages.
    Keywords: migration, inequality, Gini Index, West Africa
    JEL: F22 J61 O15
    Date: 2018–12
  15. By: Mertens, Matthias
    Abstract: This article examines how trade shocks shape labour market imperfections that create market power in labour markets and prevent an efficient allocation of labour. I develop a framework for measuring such labor market distortions in monetary terms and document large degrees of those distortions in Germany's manufacturing sector. Import competition can only exert labor market disciplining effects when firms rather than workers have labour market power. Otherwise, export demand and import competition shocks tend to fortify existing distortions by amplifying labour market power structures. This diminishes the gains from trade compared to a model with perfectly competitive labour markets.
    Keywords: international trade,market power,labor markets,allocative efficiency
    JEL: D24 F14 F16 J50 L13 L60
    Date: 2019
  16. By: Roberto Bonfatti (University of Padova; University of Nottingham); Yuan Gu (Vrije Universiteit Amsterdam); Steven (S.) Poelhekke (University of Auckland; Vrije Universiteit Amsterdam)
    Abstract: Africa's interior-to-coast roads are well suited to export natural resources, but not to support regional trade. Are they the optimal response to geography and comparative advantage, or the result of suboptimal political distortions? We investigate the political determinants of road paving in West Africa across the 1965-2012 period. Controlling for geography and the endogeneity of democratization, we show that autocracies tend to connect natural resource deposits to ports, while the networks expanded in a less interior-to-coast way in periods of democracy. This result suggests that Africa's interior-to-coast roads are at least in part the result of suboptimal political distortions.Africa's interior-to-coast roads are well suited to export natural resources, but not to support regional trade. Are they the optimal response to geography and comparative advantage, or the result of suboptimal political distortions? We investigate the political determinants of road paving in West Africa across the 1965-2012 period. Controlling for geography and the endogeneity of democratization, we show that autocracies tend to connect natural resource deposits to ports, while the networks expanded in a less interior-to-coast way in periods of democracy. This result suggests that Africa's interior-to-coast roads are at least in part the result of suboptimal political distortions.
    Keywords: political economy; democracy; infrastructure; natural resources; development
    JEL: P16 P26 D72 H54 O18 Q32
    Date: 2019–01–27
  17. By: Morasch, Karl
    Abstract: The decision over exports vs. foreign direct investment (FDI) is usually discussed in an extension of the so-called Melitz model where firms with heterogeneous costs compete in a monopolistically competitive industry. The present paper starts from a situation where a potential foreign entrant would be just indifferent between exports and FDI in such a setting. However, by assuming oligopolistic interaction, strategic considerations are also taken into account. It is shown how the strategic impact of lower marginal cost makes FDI more attractive in a Cournot setting while exports are preferable under price competition in a market with differentiated goods. Beyond that it is also explored how a strategic alliance with a local incumbent could be a superior alternative for market entry.
    Keywords: Entry strategies,Trade,FDI,Alliances,Oligopoly
    JEL: D43 L11 L41
    Date: 2018
  18. By: Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas; Usman, Ahmed
    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: 2018–09
  19. By: Jacks, David S.; Novy, Dennis
    Abstract: We examine the evolution of market potential and its role in driving economic growth over the long twentieth century. Theoretically, we exploit a structural gravity model to derive a closed-form solution for a widely-used measure of market potential. We are thus able to express market potential as a function of directly observable and easily estimated variables. Empirically, we collect a large dataset on aggregate and bilateral trade flows as well as output for 51 countries. We find that market potential exhibits an upward trend across all regions of the world from the early 1930s and that this trend significantly deviates from the evolution of world GDP. Finally, using exogenous variation in trade-related distances to world markets, we demonstrate a significant causal role of market potential in driving global income growth over this period.
    Keywords: economic geography; market potential; structural gravity; trade costs
    JEL: F1 N7
    Date: 2018–07
  20. By: Crawford, Jo-Ann; Kotschwar, Barbara
    Abstract: Our analysis covers 230 PTAs of which 111 contain substantive provisions on investment. Over the past 60 years or so, States have created an extensive network of Bilateral Investment Treaties (BITs) that govern and protect international investment. The number of BITs concluded annually continues to increase, although this rate has tapered off over the past decade. The rise in the number of BITs has been accompanied by an increasing trend among States to include investment provisions in preferential trade agreements (PTAs). In order to capture this trend we constructed a matrix of 57 investment provisions located in the investment chapter. The analysis covers provisions on scope and definition of the investment framework, investment liberalization and protection, social and regulatory goals, institutional framework, and dispute settlement. We find that the scope and depth of investment provisions has increased over time though at a modest rate. Regional groupings of PTAs demonstrate a number of common characteristics particularly with regard to the scope and definitions of the investment framework and the provisions relating to investment liberalization and protection. Host-state flexibilities are ensured in a majority of PTAs through the inclusion of a broad "right to regulate" provision. Provisions aimed at the protection of the environment occur in more than three quarters of PTAs.
    Keywords: Regional Trade Agreements,investment
    JEL: F15 F21
    Date: 2018
  21. By: Bakker, Jan David; Maurer, Stephan; Pischke, Jörn-Steffen; Rauch, Ferdinand
    Abstract: We study the causal connection between trade and development using one of the earliest massive trade expansions: the first systematic crossing of open seas in the Mediterranean during the time of the Phoenicians. We construct a measure of connectedness along the shores of the sea. This connectivity varies with the shape of the coast, the location of islands, and the distance to the opposing shore. We relate connectedness to local growth, which we measure using the presence of archaeological sites in an area. We find an association between better connected locations and archaeological sites during the Iron Age, at a time when sailors began to cross open water very routinely and on a big scale. We corroborate these findings at the level of the world.
    Keywords: urbanization; locational fundamentals; trade
    JEL: F14 N7 O47
    Date: 2018–07
  22. By: Andrew K. Rose
    Abstract: A country’s exports rise when its leadership is approved by other countries. I show this using a standard gravity model of bilateral exports, a panel of data from 2006 through 2017, and an annual Gallup survey which asks people in up to 157 countries whether they approve of the job performance of the leadership of China, Germany, Russia, the United Kingdom and the United States. Holding other things constant, a country’s exports are higher if its leadership is approved by the importer; ‘soft power’ promotes exports. The soft power effect is statistically and economically significant; a one percent increase in leadership approval raises exports by around two-thirds of a percent. This effect is reasonably robust, and different measures of soft power deliver similar results. I conservatively estimate that the >20 percentage point decline in foreign approval of American leadership between 2016 (the final year of Obama’s presidency) and 2017 (Trump’s first year) lowered American exports by at least $3 billion.
    JEL: F14 F59
    Date: 2019–01
  23. By: Kavetsos, Georgios; Kawachi, Ichiro; Kyriopoulos, Ilias; Vandoros, Sotiris
    Abstract: We study the effect of the Brexit referendum result on subjective well-being in the United Kingdom. Using a quasi-experimental design, we find that this outcome led to an overall decrease in subjective well-being in the UK compared to a control group. The effect is driven by individuals who hold an overall positive attitude towards the EU and shows little signs of adaptation. Subjective well-being of those with a very negative attitude towards the EU increases in the short-run but turns negative, possibly due to unmet expectations. Using three different measures of socio-economic connection between the UK and other European countries, we generally do not find evidence supporting the presence of spillover effects of the Brexit referendum result on subjective well-being of individuals in other EU countries.
    Keywords: subjective well-being; happiness; Brexit; referendum; election
    JEL: D72 I30 I31 I38
    Date: 2018–12
  24. By: Amior, Michael
    Abstract: The US suffers from large regional disparities in employment rates which have persisted for many decades. It has been argued that foreign migration offers a remedy: it “greases the wheels” of the labor market by accelerating the adjustment of local population. Remarkably, I find that new migrants account for 30 to 60 percent of the average population response to local demand shocks since 1960. However, population growth is not significantly more responsive in locations better supplied by new migrants: the larger foreign contribution is almost entirely offset by a reduced contribution from internal mobility. This is fundamentally a story of “crowding out”: I estimate that new foreign migrants to a commuting zone crowd out existing US residents one-for-one. The magnitude of this effect is puzzling, and it may be somewhat overstated by undercoverage of migrants in the census. Nevertheless, it appears to conflict with much of the existing literature, and I attempt to explain why. Methodologically, I offer tools to identify the local impact of immigration in the context of local dynamics.
    Keywords: migration; geographical mobility; local labor markets; employment
    JEL: J61 J64 R23
    Date: 2018–11
  25. By: Juan Carluccio; Alejandro Cuñat; Harald Fadinger; Christian Fons-Rosen
    Abstract: Using French manufacturing firm-level data for the years 1996 -2007, we uncover a novel set of stylized facts about offshoring behavior: (i) Low-productivity firms ("non-importers") obtain most of their inputs domestically. (ii) Medium-productivity firms offshore skill-intensive inputs to skill-abundant countries and are more labor intensive in their domestic production than non-importers. (iii) Higher-productivity firms additionally offshore labor-intensive inputs to labor-abundant countries and are more skill intensive than non-importers. We develop a model in which heterogeneous firms, subject to fixed costs, can offshore intermediate inputs of different skill intensities to countries with different skill abundance. This leads to endogenous within-industry variation in domestic skill intensities. We provide econometric evidence supporting the factor-proportions channel through which reductions in offshoring costs to labor-abundant countries have signicantly increased firm-level skill intensities of French manufacturers.
    Keywords: offshoring, heterogeneous firms, firm-level factor intensities, skill upgrading, Heckscher-Ohlin
    JEL: F11 F12 F14
    Date: 2018–05
  26. By: Monteiro, José-Antonio
    Abstract: Regional Trade agreements (RTAs) are sometimes viewed as laboratories in which new types of provisions are negotiated to address recent trade-related issues and challenges. A detailed analysis of 556 RTAs, including 292 agreements currently in force and notified to the WTO (as of November 2018), shows that although the inclusion of gender-related provisions in RTAs is not a recent phenomenon, a limited but increasing number of RTAs, namely 74 agreements, refer explicitly to gender-related issues. These gender-related provisions are highly heterogeneous and differ in terms of location in the RTA, language, scope and commitments. Most gender-related provisions are found in a single or couple of RTAs and couched in best endeavour language. In the last three years, a limited number of RTAs have expanded significantly the scope of gender-related provisions by establishing a dedicated article or chapter on trade and gender.
    Keywords: Regional Trade Agreements,Gender,Women
    JEL: F13 F15
    Date: 2018
  27. By: Bahar, Dany (Brookings Institution); Rosenow, Samuel (UNCTAD); Stein, Ernesto (IADB); Wagner, Rodrigo Andres (Universidad de Chile)
    Abstract: The transition into non-traditional export activities attracts important policy and academic attention. Using international trade data, we explore how alternative linkages relate to the take-off and acceleration of export industries. Concretely, we run a horse-race among alternative Marshallian linkages across sectors: input-output relations, technology and labor. Technology has a predictive power depending on the specification used. We consistently find, however, that export take-offs are more likely to occur in sectors that are upstream to already competitive export industries. Our findings, which are mostly driven by developing economies, are consistent with Albert Hirschman's 60-yearold view that the forces behind upstream linkages fueled the growth of new competitive industries in the developing world.
    Keywords: relatedness, comparative adventage, patents, labor, upstream, downstream
    JEL: O14 O33 F14
    Date: 2018–12
  28. By: Amuedo-Dorantes, Catalina (San Diego State University); Arenas-Arroyo, Esther (University of Oxford); Sevilla, Almudena
    Abstract: Twelve U.S. states, plus the District of Columbia, have recently enacted measures granting undocumented immigrants access to driving licenses. We exploit the state and temporal variation in the issuing of state driving licenses to undocumented immigrants to estimate its impact on these population's employment outcomes. Using 2013 through 2017 data from the monthly Current Population Survey and its Outgoing Rotation Groups, we show that likely undocumented women increase their labor supply in response to the availability of driver licenses. Their work propensity rises by 4.2 percentage points, aligning it to that of their male counterparts. In addition, those at work raise their weekly hours of work by 4 percent. Overall, their real hourly wages drop by 3 percent. We find no similar impacts among likely undocumented men –a result consistent with a standard labor supply model predicting a greater response from individuals with a larger elasticity. Additionally, we find no apparent impacts on the labor supply and wages of similarly skilled Hispanic native-born women. At a time when anti-immigrant sentiments are at an all-time high, understanding how these policies impact targeted groups and similarly skilled native populations is crucial for maintaining an informed immigration policy debate.
    Keywords: driver licenses, undocumented immigrants, labor market impacts, United States
    JEL: I38 J15 J22
    Date: 2018–12
  29. By: Furuoka, Fumitaka
    Abstract: This paper proposes a new causality test or a Fisher-type causality test to examine empirically the export-growth nexus. To empirically demonstrate this new causality test procedure, the Fisher causality test is used to examine the exports-growth nexus in four Asian economies, namely Indonesia, Philippines, Hong Kong and Japan. The new causality test could detected a complex situation in the export-growth nexus in Asia. The Fisher causality test clearly pointed out that there are unidirectional causality from economic growth to exports in Indonesia, bidirectional causality between exports and economic growth in Philippines, no causality relationship between exports and economic growth in Hong Kong and Japan.
    Keywords: Exports, economic growth, causality test, Asia
    JEL: C22 F43
    Date: 2018–12–15
  30. By: Rebekka Burkholz; Frank Schweitzer
    Abstract: Analyzing available FAO data from 176 countries over 21 years, we observe an increase of complexity in the international trade of maize, rice, soy, and wheat. A larger number of countries play a role as producers or intermediaries, either for trade or food processing. In consequence, we find that the trade networks become more prone to failure cascades caused by exogenous shocks. In our model, countries compensate for demand deficits by imposing export restrictions. To capture these, we construct higher-order trade dependency networks for the different crops and years. These networks reveal hidden dependencies between countries and allow to discuss policy implications.
    Date: 2019–01
  31. By: Laaser, Claus-Friedrich; Schrader, Klaus
    Abstract: For Germany and the other large BSR neighbors Poland an the Russian Federation Baltic Sea trade is of minor importance. The BSR is only one integration area — i.e. destination of its exports and origin of its imports — among a lot of peers being located in other directions of the compass rose. Moreover the BSR in a narrower sense is characterized by a high degree of economic heterogeneity — a North-South downward gradient of wealth can be observed. This wealth gap at the Baltic Sea implies diverging economic interests.
    Keywords: Ostseeraum,Wirtschaftsintegration
    JEL: F15 F02
    Date: 2018
  32. By: Adznan, Syaima; Masih, Mansur
    Abstract: The exchange rate is able to influence the trade balance in most of countries’ economy. When a country's trade account does not net to zero – that is, when exports are not equal to imports – there is relatively more supply or demand for a country's currency, which influences the price of that currency on the world market. However, the relationship between exchange rate and trade balance is indecisive both in long run and short run. The purpose of this paper is to examine the relationship between exchange rate and trade balance in Malaysia. This study extends prior literature by using a more recent monthly time series data and relatively advanced techniques known as ARDL and NARDL. Based on this study, it is found that the relationship between these two variables exists. It also found that trade balance is worsened in the short-run in line with the J-curve theory. These results imply that there is a trade-off of depreciation between short-run and long-run, and between exporting sectors and importing sectors. Policymaker could moderately depreciate the currency to boost trade balance but needs to effectively manage the cost incurred.
    Keywords: Trade Balance, Interest Rate, NARDL, ARDL, Malaysia
    JEL: C22 C58 G15
    Date: 2018–12–30
  33. By: Paulone, Sara (University of Siena); Ivlevs, Artjoms (University of the West of England, Bristol)
    Abstract: Despite the growth of alcohol consumption and international migration in many developing countries, the links between the two remain underexplored. We study the relationship between emigration of household members, receiving remittances (migrant monetary transfers), and alcohol consumption of migrant household members staying behind in Kyrgyzstan, a poor post-socialist country that has recently witnessed both large-scale emigration and a rise in alcohol-related health problems. Using a large longitudinal survey, we find that, among the ethnic majority (Kyrgyz), an increase in migrant remittances is associated with a higher likelihood and frequency of consuming alcohol, as well as an increase in the consumption of beer. Among ethnic Russians, the emigration of family members who do not send remittances back home is associated with an increased likelihood and frequency of alcohol consumption. We discuss possible mechanisms through which emigration and remittances may affect the alcohol consumption of those staying behind, including the relaxation of budget constraints and psychological distress. Overall, our findings suggest that the emigration of household members contribute to a greater alcohol consumption among those staying behind, and highlight the role of remittances and cultural background in understanding the nuances in this relationship.
    Keywords: emigration, alcoholism, Kyrgyzstan, Central Asia, monetary remittances, social remittances
    JEL: F22 F24 J61 I12
    Date: 2019–01
  34. By: Özçelik, Emre; Tuğan, Mustafa
    Abstract: This paper studies the terms of trade effects from unexpected economy-specific productivity increases in both developing and advanced economies using a panel vector autoregression model with interactive fixed effects and the “max-share” approach developed by Francis et al. (2014). First, we find that the terms of trade of developing economies do not deteriorate after unexpected productivity increases and display similar dynamics to those of advanced economies. Second, studying these shocks in a more detailed classification of developing economies shows that the terms of trade worsen following an unexpected productivity increase in the least developed economies, implying that economic underdevelopment can result in unexpected productivity increases causing a deterioration in the terms of trade. However, this adverse effect of productivity increases disappears in the developing economies with some success in moving up the ladder of economic development, as implied by our finding that the terms of trade of these economies improve after an unexpected productivity increase.
    Keywords: Productivity shocks; The terms of trade; Developing economies; Advanced economies.
    JEL: O11 O19 O47 O57
    Date: 2019–01
  35. By: Simbarashe Mhaka (Department of Economics, Nelson Mandela University); Leward Jeke (Department of Economics, Nelson Mandela University)
    Abstract: South Africa’s (SA) largest trading partner is China. The bilateral trade flows between these two economies have been increasing since the end of the global financial crisis. There are several factors that determine the trade flows between these two economies. Research studies the impact of the real exchange rate, market size and economic size on the trade flows between SA and China, applying the gravity model of trade. Time series data for the period of 1995–2014 have been used and a multiple linear regression model was employed in the evaluation process. To determine the impact of the three underlying variables on the bilateral trade flows of SA and China, the ordinary least squares method was used. The explanatory variables consist of the product of SA’s gross domestic product (GDP) and China’s GDP, which act as the proxy for economic size, the product of South Africa’s population and China’s population, which act as the proxy for market size, and the real exchange rate between SA and China. Results revealed that the economic size and the market size have a strong positive impact on trade flows between SA and China and this is consistent with economic theory. On the other hand the real exchange rate has a negative impact on trade flows between SA and China. If two countries each have a large economic and population size trade, this results in high trade flows between the countries as compared to trading with smaller economies. Trade volume is also reduced if the countries trading have a highly volatile exchange rate. Based on the findings of the research, the article recommends that the Department of Trade and Industry should target trade with countries of big economic and market size. The research also shows that the absolute and comparative advantages are not the only basis of trade but other factors should be considered, such as exchange rate, economic size and market size. The central bank should maintain a stable exchange rate between the SA rand and partner countries’ currencies before trading. This enhances trade and leads to strong economic growth.
    Keywords: trade flows, economic size, market size, exchange rate, gravity model
    JEL: C23 F13
    Date: 2018–12
  36. By: Kaneko, Soh; Yoshihara, Naoki
    Abstract: This paper analyzes the persistency of the unequal exchange of labor (UE) in international trade. An intertemporal model of a world economy is defined with a leisure preference and no discount factor. Every incompletely specialized free trade equilibrium is characterized as having non-persistent UE, which verifies the convergence of economies without relying on economic growth or diminishing returns to scale. In particular, it characterizes a sub-class of equilibria in which the sequence of real interest rates does not converge to zero, but UE tends to disappear while equivalently the distribution of capital assets tends to be equalized in the long run.
    Keywords: Unequal exchange of labor, a world economy with a leisure preference, non-stationary relative prices of commodities
    JEL: D51 D63 D91
    Date: 2019–01
  37. By: Bruni, Michele
    Abstract: A brief analysis of the different demographic tendencies that will affect the 65 countries of the Belt and Road Initiative allows to point out that they are largely spread along the path of the demographic transition so that in some working age population will dramatically decline, in others will dramatically increase. The implication is that the first group of countries (epitomized by China, Russia, Thailand, but also by Singapore) will be affected by a structural shortage of labour, the second (well represented by India, but also by Pakistan, Egypt and Philippines) by a structural excess of labour. Therefore, for the countries of the first group immigration will not be an option but a necessity, while for the countries of the second group emigration will not be an option but a necessity. The situation suggests that it would be in the interest of all BRI countries to design, develop and implement a policy framework that would allow them to jointly manage migration flows in the amount and with the educational stricture coherent with their needs. However, such a process is extremely difficult and complex and to succeed needs to be properly directed and orchestrated. The paper argues that given its size, the dimension of its need of foreign labour, and its role in the Belt and Road Initiative it is China that should take the lead of a rational approach that falls well inside the strategies of the Initiative.
    Keywords: Belt and Road Initiative,China,migration,labour market,demographic transition,demographic polarization
    JEL: J11 J2 J61
    Date: 2019
  38. By: Luciana Méndez-Errico (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: This paper examines to what extent recently arrived immigrants in Uruguay experience occupation?over-education in the host labor market, and whether those over-educated workers are penalized in the destination country. Results of this study show that the more immigrants are educated, the more chances they have for being over-educated. Also, immigrants embedded in larger immigrants' social networks are less prone to be over-educated. Findings also stress that for women, over-education is reduced the longer the length of residence in Uruguay and the more years of continuous employment experience they have. Finally, it is found that over-educated immigrants are penalized in the labor market; while only for women, the more they live and continuously work in Uruguay, the larger their labor earnings.
    Keywords: Immigration, over-education, wage penalty
    JEL: J15 J24 J30 J62
    Date: 2018–12
  39. By: Aksu, Ege (CUNY Graduate Center); Erzan, Refik (Bogazici University); Kirdar, Murat G. (Bogazici University)
    Abstract: We estimate the effects of the arrival of 2.5 million Syrian migrants in Turkey by the end of 2015 on the labor market outcomes of natives, using a difference-in-differences IV methodology. We show that relaxing the common-trend assumption of this methodology - unlike recent papers in the same setting - makes a substantial difference in several key outcomes. Despite the massive size of the migrant influx, no adverse effects on the average wages of men or women or on total employment of men are observed. For women, however, total employment falls - which results mainly from the elimination of part-time jobs. While the migrant influx has adverse effects on competing native workers in the informal sector, it has favorable effects on complementary workers in the formal sector. We estimate about one-to-one replacement in employment for native men in the informal sector, whereas both wage employment and wages of men in the formal sector increase. Our findings, including those on the heterogeneity of effects by age and education, are consistent with the implications of the canonical migration model. In addition, increases in prices in the product market and in capital flow to the treatment regions contribute to the rise in labor demand in the formal sector.
    Keywords: labor force and employment, wages, immigrant workers, formal and informal sectors, Syrian refugees, Turkey, difference-in-differences, instrumental variables
    JEL: J21 J31 J61 C26
    Date: 2018–12

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