nep-int New Economics Papers
on International Trade
Issue of 2019‒05‒06
23 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Phase out tariffs, phase in trade? By Tibor Besedes; Tristan Kohl; James Lake
  2. Indian companies’ technological investments in the EU with a special focus on Central and Eastern Europe By Tamas Gerocs
  3. Importing after exporting By Facundo Albornoz; Ezequiel Garcia-Lembergman
  4. Globalization and taxation: theory and evidence By Priyaranjan Jha; Giray Gozgor
  5. Global Value Chains and Vertical Specialization: The case of Portuguese Textiles and Shoes exports By Tiago Domingues
  6. A Look at the main channels of Potential Impact of Brexit on the Portuguese Economy By Guida Nogueira; Paulo Inácio
  7. Optimal Cooperative Taxation in the Global Economy By Chari, V. V.; Nicolini, Juan Pablo; Teles, Pedro
  8. Providing new OECD evidence on tourism trade in value added By OECD
  9. Institutional Similarity and Bilateral FDI By Makram El-Shagi; Bashir Muhammad
  10. The 2018 US-China Trade Conflict After 40 Years of Special Protection By Bown, Chad P.
  11. Income redistribution and self-selection of immigrants By Corneo, Giacomo; Neidhöfer, Guido
  12. Firm Size, Quality Bias and Import Demand By Blaum, Joaquin; Lelarge, Claire; Peters, Michael
  13. Of course Collusion Should be Prosecuted. But Maybe... Or (The case for international antitrust agreements) By Filomena Garcia; Jose Manuel Paz y Minõ; Gustavo Torrens
  14. The potential of the EU economies in attracting FDI – A composite index based approach By Dell'Anno, Roberto; Strat, Vasile Alecsandru
  15. Russian energy and ICT MNEs in global value chains: Shift of location advantages under the sanctions By Garanina, Olga; Abramova, Abramova
  16. Effects of Industry 4.0 on reshoring investments - Hungarian experiences By Andrea Elteto
  17. The effect of airports on the growth of service exports By Richard Kneller; Danny McGowan
  18. Morocco Faces its First Commercial Dispute before the WTO By Jamal Machrouh
  19. The Comparative Advantage of Firms By Boehm, Johannes; Dhingra, Swati; Morrow, John
  20. Government credit and trade war By Cai, Ning; Feng, Jinlu; Liu, Yong; Ru, Hong; Yang, Endong
  21. Multinational enterprises and social protection a case study of the L’Oréal Share & Care Program By Sekerler Richiardi, Pelin.; Arbo, Ma. Diyina Gem.
  22. Global Declining Competition By Federico J Diez; Jiayue Fan; Carolina Villegas-Sánchez
  23. Measuring Global Economic Activity By James D. Hamilton

  1. By: Tibor Besedes; Tristan Kohl; James Lake
    Abstract: What causes U.S. trade with Mexico and Canada to continue growing faster, for up to a decade, relative to countries with which the U.S. does not have a free trade agreement? Baier and Bergstrand (2007) suggest that tariff phase-out and delayed pass-through of tariffs into import prices could cause such prolonged differential import growth. We examine how tariff cuts negotiated under the Canada-US Free Trade Agreement and the North American Free Trade Agreement (NAFTA) affected U.S. import growth in 1989{2016 using detailed product-level data on tariff phase-out in the original treaties. We find essentially no evidence for the tariff phase-out or delayed pass through explanations. Rather, we find evidence for an important role played by NAFTA tariff cuts reducing the impacts of frictions at various extensive margins.
    Keywords: free trade agreements, CUSFTA, NAFTA, trade, phase-out, tariffs, extensive margin
    JEL: F10
    Date: 2019
  2. By: Tamas Gerocs (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: India is one of the fastest growing economies in the world whose global share in “outward foreign direct investment” (OFDI) among the developing countries increased from a low level to second only to China. It has not only been a spectacular rise in Indian overseas investment activity, but the nature and the structure of Indian OFDI have also changed in the last decades. In the following paper we will examine the reasons and driving forces behind this spectacular rise, concentrating mostly on those host country characteristics that are the pull factors in attracting Indian investments. We follow the most recent literature on global value-chain specialization as much of Indian outward foreign investment is following a technology-seeking strategy currently. We choose Central and Eastern Europe as our case study because the region combines attributions of both advanced and developing countries in attracting Indian investment.
    Keywords: Central and Eastern Europe, technology-seeking investment, India, OFDI, internationalization, global value chains, production system, global contender, absorptive capacity, medium-tech manufacturing, level of productivity, R&D
    JEL: F14 F23 H63 L22
    Date: 2018–11
  3. By: Facundo Albornoz; Ezequiel Garcia-Lembergman
    Abstract: In this paper, we uncover a novel fact about the relationship between exporting and importing. Using a comprehensive database of Argentine firms, we find that exporting to a new destination increases the probability of a firm beginning to import from that market within the lapse of one year. We develop a model of import and export decisions to study the effect of productivity and import costs on the intensive and extensive margins of importing. Comparing these predictions with the observed effect of reaching new export destinations, we argue that export entry in a market reduces import costs in that market. We show that importing after exporting is stronger in distant markets and in situations where importing involves non-homogeneous and rarely imported goods. Furthermore, the effect on the probability of importing remains, regardless on whether the firm survives in the export market. Taken together, our results suggest that firms gain knowledge on -or establish links with- potential suppliers after export entry, which reduces the costs associated with searching for import sources. The effect of export entry on sourcing costs has implications that go beyond offering insights on importing: according to our quantitative exercise, import costs fall 53% in a given destination after export entry (from US$ 49,600 to US$ 26,600), and the estimated import cost savings increase for distant markets outside the Americas.
    Keywords: importing; exporting; trading costs; learning
    Date: 2019
  4. By: Priyaranjan Jha; Giray Gozgor
    Abstract: We construct a theoretical model to capture the compensation and efficiency effects of globalization in a set up where the redistributive tax rate is chosen by the median voter. The model predicts that the two alternative modes of globalization- trade liberalization and financial openness- could potentially have different effects on taxation. We then provide some empirical evidence on the relationship between taxation and the alternative modes of globalization using a large cross-country panel data set. On average, globalization is associated with lower taxation but there is some evidence that in countries with high capital-labor ratio, globalization is associated with increased taxation. We make a distinction between de jure and de facto measures of globalization and find a strong negative relationship between taxation and de jure measures of globalization. The results for de facto measures of globalization are mixed.
    Keywords: trade liberalization, capital market openness, redistributive taxation, median voter
    JEL: F11 F21 H11
    Date: 2019
  5. By: Tiago Domingues (GEE)
    Abstract: This paper evaluates the growing participation of the Portuguese economy, and especially of the textiles, leather, and shoes industry, in the so-called Global Value Chains (GVCs).We use the 2016 edition of the World Input-Output Database (WIOD) to empirical assess the changes in the geography of imports and exports of the Portuguese textiles, leather and shoes industry as well as quantify the growing vertical specialization in this sector. We also measure value added, import and employment coefficients for the Portuguese economy and the Portuguese textiles, leather, and shoes sector. The results show that Portuguese textiles, leather, and shoes trade have been more concentrated in Spain, Italy, India and China and less concentrated in Germany, France, and the United Kingdom. This sector is more relevant in the Portuguese economy than in any other Eurozone economy in terms of output, employment and value-added, and it has been recovering its relevance in the Portuguese economy since 2009.Textiles, leather, and shoes is the manufacturing industry with the higher potential to generate new jobs in Portugal. Despite the negative contribution of the financial crisis, vertical specialization of Portuguese textiles, leather, and shoes exports have been increasing ever since.
    Keywords: Global value chains; Textiles, leather, and shoes; Input-Output models
    JEL: C67 D57 E01 F14 L67
    Date: 2018–12
  6. By: Guida Nogueira (Gabinete de Estratégia e Estudos, Ministério da Economia); Paulo Inácio (Gabinete de Estratégia e Estudos, Ministério da Economia)
    Abstract: On June, 2016 the UK decided to leave the EU. The departure date was originally scheduled for March 29, 2019 but the process reached an impasse as the withdrawal agreement, that was negotiated with the European Union, failed to get parliamentary approval. The EU agreed to offer the UK a flexible extension of the Brexit deadline until October 31, but the risk of a no-deal scenario still exists. Since there is no precedent of a Member State withdrawing from the European Union, the implications of Brexit for the EU countries are still highly uncertain. However, countries and industries that have deep economic ties, in terms of international integration, to the UK are the most vulnerable to this departure. In this work we will use trade in value added statistics from OECD-WTO TiVA database and related indicators to depict how exposed and thus vulnerable is Portugal and its sectors to the UK market, delivering a useful contribute for assessing potential impacts of Brexit on the Portuguese Economy.
    Keywords: Portugal, Trade in Value Added, Brexit
    JEL: F12
    Date: 2019–05
  7. By: Chari, V. V. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal)
    Abstract: We use the Ramsey and Mirrlees approaches to study how fiscal and trade policy should be set cooperatively when governments must raise revenues with distorting taxes. Free trade and unrestricted capital mobility are optimal. Efficient outcomes can be implemented with taxes only on final consumption goods and labor income. We study alternative tax systems, showing that uniform taxation of household asset returns, and not taxing corporate income yields efficient outcomes. Border adjustments exempting exports from and including imports in the tax base are desirable. Destination and residence based tax systems are desirable compared to origin and source based systems.
    Keywords: Capital income tax; Free trade; Value-added taxes; Border adjustment; Origin- and destination-based taxation; Production efficiency
    JEL: E60 E61 E62
    Date: 2019–04–18
  8. By: OECD
    Abstract: The ability to measure the economic impacts of tourism provides policy makers with the evidence necessary to ensure that future policies are targeted to meet strategic objectives. However, despite significant work on tourism economics, notably with the Tourism Satellite Account, a deeper understanding is needed of how tourism trade directly and indirectly contributes to the economic growth and competitiveness of countries. This report scopes out the benefits and challenges of analysing tourism from a trade in value added perspective. It identifies the priority actions to strength the underlying ‘value chain’ of national statistics needed to build analyses tourism from a trade in value added perspective, and sets out a roadmap to make progress. It builds on wider OECD work on Trade in Value Added (TiVA), and represents a first attempt to better link tourism data with the underlying Inter-Country Input-Output (ICIO) infrastructure. Pilot country analysis for Canada, Portugal and the United Kingdom is presented.
    Keywords: global value chains, globalisation, ICIO, Tourism economy, tourism expenditure, Tourism Satellite Account (TSA), tourism statistics, trade, Trade in Value Added (TiVA)
    Date: 2019–05–03
  9. By: Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Bashir Muhammad (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)
    Abstract: In this paper we assess the effect of institutional similarity on foreign direct investment. In a large panel of bilateral FDI stocks that covers roughly 190 countries both as host and source country of FDI we demonstrate that it is not similarity in general, but similarity with respect to government involvement in markets and with respect to corruption that matters. Our finding is robust to a large set of different panel estimators and specifications of the gravity model that is underlying our estimation.
    Keywords: FDI, institutions, similarity, gravity model
    JEL: F21 E02 D73
  10. By: Bown, Chad P.
    Abstract: In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately retaliated with tariffs on more than 70 percent of imports from the United States. This paper assesses what happened in 2018 and attempts to explain why. It first constructs a new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China's state-owned enterprises and industrial subsidies, as well as China's development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis-which may result in a severely weakened World Trade Organization-was deliberate and out of frustration with the institution itself.
    Keywords: retaliation; tariffs; Trade War; WTO
    JEL: F13
    Date: 2019–04
  11. By: Corneo, Giacomo; Neidhöfer, Guido
    Abstract: We analyze the effects of governmental redistribution of income on migration patterns using an Italian administrative dataset that includes almost every Italian citizen living abroad. Since Italy takes a middle ground in terms of redistribution, both the welfare-magnet effect from more redistributive countries and the propensity of the high-skilled to settle in countries with lower taxes can be empirically studied. Our findings confirm the hypothesis that destination countries with more redistribution receive a negative selection of Italian migrants. Policy simulations are run in order to gauge the magnitude of those migration effects. Based on estimated elasticities, we find that sizable increases in the amount of redistribution in Italy have small effects on the skill composition of the resident population.
    Keywords: redistribution; Roy model
    JEL: D31 H23
    Date: 2019–04
  12. By: Blaum, Joaquin; Lelarge, Claire; Peters, Michael
    Abstract: Commonly used firm-based models of importing imply that firm productivity should have no effect on the allocation of expenditure across a common set of sourcing countries. Using French data, we show that this homotheticity property is soundly rejected: larger firms concentrate their import spending on their top varieties, holding the sourcing strategy fixed. To rationalize this finding, we propose a novel model of importing that features (i) a complementarity between firm productivity and input quality and (ii) heterogeneity across countries in their ability to produce high quality inputs. This model implies that large firms bias their spending towards countries with a comparative advantage in producing high quality inputs and hence generates a non-homothetic import demand system. We provide empirical support for this and other predictions of this theory.
    Keywords: Firm Heterogeneity; firm size; non-homothetic import demand; quality-productivity complementarity; trade in intermediate inputs
    JEL: D21 D22 D24 F11 F12 F14
    Date: 2019–04
  13. By: Filomena Garcia (Indiana University, & UECE); Jose Manuel Paz y Minõ (Indiana University); Gustavo Torrens (Indiana University)
    Abstract: We study the incentives of competition authorities to prosecute collusive practices of domestic and foreign firms. For that purpose, we develop a model of multi-market contact between two firms that can engage in collusion in two countries. In each country, there is a competition authority with a mandate to maximize national welfare. Each competition authority decides its prosecution policy at the beginning of time and commits to it. In equilibrium, the ownership distribution of the firms (domestic versus foreign) affects prosecution policies. The country that does not own the firms prosecutes them as soon as information of collusion becomes available. On the contrary, the country that owns the firms has an incentive to protect their profits in foreign markets delaying prosecution. This strategic delay is valuable because it contains the information spreading that could trigger prosecution in the foreign country. Prosecution delays, however, are not optimal from the point of view of global welfare, something that could be solved through the integration of the competition authorities. The country of origin of the firms would nevertheless oppose integration. Finally, in a multi-industry setting, both countries delay prosecuting domestic firms, which again is not optimal from the point of view of global welfare. Moreover, in a multi-industry setting, both countries can be better off under integration.
    Keywords: Multi-market Collusion, Antitrust Policy, Strategic Prosecution, International Antitrust Agreements
    JEL: F23 F53 L41 K21
    Date: 2018–05
  14. By: Dell'Anno, Roberto; Strat, Vasile Alecsandru
    Abstract: The paper presents a composite index which measures the potential of the 28 European Union (EU) member countries in attracting foreign direct investments (FDI), for the period 2000 – 2012. Several new variables (in respect to other aggregated Indices) linked to the latest development policies of the European Union are considered in the construction process of the proposed index. By comparing several versions of the constructed index with some of the most notorious indicators used to measure the FDI attractiveness, we find that the PCA (principal component analysis) version of our index shows the best performance in tracking the FDI activity of the EU economies. The empirical results show that the FDI activity is concentrated in the developed economies, confirming therefore previous results presented in the literature. The construction methodology of our index allows the identification of the main characteristics of the European economies which should be taken in consideration by the national governments when forging policies for increasing the FDI attractiveness of their economies. Among other practical applications of the proposed index, it can be used as a starting point for identifying benchmark economies which can help policymakers identify best practices and innovative approaches for the areas where their economies are lagging behind.
    Keywords: FDI potential index, FDI determinants, PCA, composite index, EU member states
    JEL: F21 F43 O16 O52
    Date: 2018
  15. By: Garanina, Olga; Abramova, Abramova
    Abstract: The paper is focused on detailed analysis of the expansion challenges of Russian MNEs under the sanctions. The present research aims to understand how the shifts in global governance affect Russian multinationals (MNEs) inclusion into GVCs. We focus on energy and ICT industries. The research is based on multiple case study. Cases from energy and ICT sectors are examined in order to demonstrate the challenges for Russian MNEs inclusion in GVCs in context of sanctions and opportunities connected to the emergence of new governance institutions supporting Russian MNEs expansion towards Asia. Expected results are the following: a structured overview of external policy constraints and opportunities for Russian MNCs inclusion into GVCs; analysis of possible options for expansion of Russian MNEs in GVCs in Europe and in Asia.
    Date: 2018
  16. By: Andrea Elteto (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: After the 2008 crisis, the topic of reshoring previously outsourced production was raised in the EU and the USA, in parallel to reindustrialization and competitiveness discourses. This paper clarifies the definition of reshoring, backshoring and nearshoring, while enumerating the possible motivations for them (eg. higher-than-expected labour or transport costs, strategic decision-making, insufficient product quality). Automation and robotization (parts of the ‘Industry 4.0’ concept) can provide a push in the global production chain for various forms of ‘shoring’. This can be highly relevant for CEE countries, given their high-levels of integration into global production chains. Advanced robotics increasingly allows the substitution of labour, thus a wave of reshoring can take place from low-cost labour-intensive countries to developed countries that previously exported capital and technology. This paper addresses reshoring impacting Hungary (backshoring from Hungary and nearshoring to Hungary from Far-Eastern countries). Apart from theoretical writings, little work has been done on the empirics of reshoring and its correlation with robotization. This paper summarises these empirical studies in a targeted literature review, while recent trends are mapped based on press information and interviews. The major conclusions are that backshoring from Hungary because of Industry 4.0 is practically non-existent, but examples of nearshoring to Hungary can be found. Certain country-specific characteristics (e.g. labour shortages, legal instability, tax policy) contribute to investment and automation decisions of foreign producers. Moreover, domestic SMEs are generally not prepared to the introduction of Industry 4.0 technologies in Hungary in comparison to the foreign affiliates.
    Keywords: reshoring, industry 4.0, Hungary, automation, nearshoring
    JEL: F23 M11 M15 O33
    Date: 2019–04
  17. By: Richard Kneller; Danny McGowan
    Abstract: This paper studies the causal effect of airports on the growth of service exports. We exploit the location of historic military-built airfields as instruments for the current stock of international airports across UK regions. The estimates show that an additional airport increases the growth rate of exports by 76% over an 8-year time period. Airports affect exports by increasing both the intensive and extensive margins. The evidence is consistent with airports improving market access and reducing fixed and variable trade costs. These results are robust to the addition of contemporaneous and historic controls and various falsification and robustness tests.
    Keywords: airports; exports; service sector
    Date: 2019
  18. By: Jamal Machrouh
    Abstract: This paper examines Turkey's case against Morocco before the World Trade Organization (WTO), over anti-dumping duties on hot-rolled steel products. Turkey's complaint constitutes both a precedent and an opportunity. First, it is a precedent in that Morocco was previously never involved in a case before GATT or WTO, neither as a plaintiff nor as a defendant. Second, it is an opportunity as the evaluation of the legal process of the complaint enables an assessment of adequacy of Morocco's arguments and, consequently, the elaboration of recommendations and guidelines for the overall legal strategy.
    Date: 2019–02
  19. By: Boehm, Johannes; Dhingra, Swati; Morrow, John
    Abstract: Multiproduct firms dominate production, and their product turnover contributes substantially to aggregate growth. Theories propose that multiproduct firms grow by diversifying into products which need the same know-how or capabilities, but are less clear on what these capabilities are. Input-output tables show firms co-produce in industries that share intermediate inputs, suggesting input capabilities drive multiproduct production patterns. We provide evidence for this in Indian manufacturing: the similarity of a firm's input mix to an industry's input mix predicts entry into that industry. We identify the direction of causality from the removal of size-based entry barriers in input markets which made firms more likely to enter industries that were similar in input use to their initial input mix. We rationalize this finding with a model of industry choice and economies of scope to estimate the importance of input capabilities in determining comparative advantage. Complementarities driven by input capabilities make a firm on average 5% (and up to 15%) more likely to produce in an industry. Entry barriers in input markets constrained the comparative advantage of firms and were equivalent to a 10.5 percentage point tariff on inputs.
    Keywords: comparative advantage; Economies of scope; firm capabilities; Multiproduct Firms; size-based policies; vertical input linkages
    JEL: F11 L25 M2 O3
    Date: 2019–04
  20. By: Cai, Ning; Feng, Jinlu; Liu, Yong; Ru, Hong; Yang, Endong
    Abstract: By merging transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze the effects of government credit on trade activities. We find that CDB credit mainly flows to SOEs in strategic industries at the top of the supply chain. These up-stream loans lead to the lower price and higher amount of export goods of private firms in down-stream industries, which leads to decreases in employment and performance of the US firms in the same industry. In contrast, the US firms in downstream industries use cheaper intermediate goods imported from China and perform better subsequently.
    JEL: E51 F30 G21 G28
    Date: 2019–04–23
  21. By: Sekerler Richiardi, Pelin.; Arbo, Ma. Diyina Gem.
    Keywords: 1, 2, 3, 4
    Date: 2019
  22. By: Federico J Diez; Jiayue Fan; Carolina Villegas-Sánchez
    Abstract: Using a new firm-level dataset on private and listed firms from 20 countries, we document five stylized facts on market power in global markets. First, competition has declined around the world, measured as a moderate increase in average firm markups during 2000- 2015. Second, the markup increase is driven by already high-markup firms (top decile of the markup distribution) that charge increasing markups. Third, markups increased mostly among advanced economies but not in emerging markets. Fourth, there is a non-monotonic relation between firm size and markups that is first decreasing and then increasing. Finally, the increase is mostly driven by increases within incumbents and also by market share reallocation towards high-markup entrants.
    Date: 2019–04–26
  23. By: James D. Hamilton
    Abstract: A number of economic studies have used a proxy for world real economic activity derived from shipping costs. This measure turns out to depend on a normalization that has substantive consequences of which users of the index had been unaware prior to this paper. This paper further evaluates this and alternative measures in terms of treatment of trends, coherence with world output, and ability to predict commodity prices. I conclude that measures derived from world industrial production offer a better indicator of global real economic activity.
    JEL: E01 Q02
    Date: 2019–04

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