nep-int New Economics Papers
on International Trade
Issue of 2019‒10‒07
thirty-one papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Determinants of Developing Countries' Export Upgrading: The Role of China and Productive Investment By Yue Teng; Dic Lo
  2. Productivity and innovation at the industry level: What role for integration in global value chains? By Peter Gal; William Witheridge
  3. The cost of non-TTIP: a global value chain approach By Hylke Vandenbussche; William Connell Garcia; Wouter Simons
  4. Trade Tariff, Wage Gap and Public Spending By Michele G. Giuranno; Antonella Nocco
  5. A comment on the multifaceted relationship between multinational enterprises and within-country inequality By Narula, Rajneesh; Van der Straaten, Khadija
  6. Trade Theory with Global Production Networks By David Baqaee
  7. Service Imports, Workforce Composition, and Firm Performance: Evidence from Finnish Microdata By Andrea Ariu; Katariina Nilsson Hakkala; J. Bradford Jensen; Saara Tamminen
  8. The role of firm factors in demand, cost, and export market selection for Chinese footwear producers By Roberts, Mark J.; Yi Xu, Daniel; Fan, Xiaoyan; Zhang, Shengxing
  9. Trade Liberalization and Labor Market Adjustment in Botswana By Margaret S. McMillan; Brian McCaig
  10. Migration, Specialization and Trade: Evidence from the Brazilian March to the West By Heitor Pellegrina; Sebastian Sotelo
  11. Reopening Pandora's Box in Search of a WTO-Compatible Industrial Policy? The Brazil-Taxation Dispute By Emanuel Ornelas; Laura Puccio
  12. Old Firms and New Export Flows: Does Experience Increase Survival? By Martina Lawless; Zuzanna Studnicka
  13. The buyer margins of firms' exports By Carballo, Jerónimo; Ottaviano, Gianmarco I. P.; Martincus, Christian Volpe
  14. On the Relationship between Trade Openness and Government Size By Mohammad Farhad; Michael Jetter
  15. Long-Run Impacts of Trade Shocks and Export Competitiveness: Evidence from the U.S. BSE Event By Chen-Ti Chen; John M. Crespi; William Hahn; Lee Schulz; Fawzi Taha
  16. Decomposing firm-product appeal: how important is consumer taste? By Bee Yan Aw; Yi Lee; Hylke Vandenbussche
  17. Trade Flows and Exchange Rates: Importers, Exporters and Products By Michael Devereux; Wei Dong; Ben Tomlin
  18. The measurement implications of offshore profit shifting By Fatih Guvenen; Dylan Rassier; Kim Ruhl; Raymond Mataloni
  19. The Potential for innovation in mining value chains. Evidence from Latin America By Iizuka, Michiko; Pietrobelli, Carlo; Vargas, Fernando
  20. Is export diversification or export specialization responsible for economic growth in BRICS countries? By Sinesipho Siswana; Andrew Phiri
  21. A Replication of “The Role of Intermediaries in Facilitating Trade” (Journal of International Economics, 2011) By Jianhua Duan; Xuefeng Qian; Kuntal K. Das; Laura Meriluoto; W. Robert Reed
  22. Forecasting Exports across Europe: What Are the Superior Survey Indicators? By Robert Lehmann
  23. Demographics and the Evolution of Global Imbalances By Michael Sposi
  24. Intellectual Property Protection and Foreign Direct Investment into Less Developed Economies in the post-TRIPs Period By Sunil Kanwar; Stefan Sperlich
  25. Firm-to-Firm Trade: Exports, Imports, and the Labor Market By Jonathan Eaton; Francis Kramarz; Samuel Kortum
  26. Price Dispersion and the Border Effect By Ryan Chahrour; Luminita Stevens
  27. The Politicization of Transatlantic Trade in Europe: Explaining Inconsistent Preferences Regarding Free Trade and the TTIP By Aleksandra Sojka; Jorge Diaz-Lanchas; Federico Steinberg
  28. Financial Development and Trade Liberalization By David Kohn; Fernando Leibovici; Michal Szkup
  29. Accounting for Cross-Country Productivity Differences: New Evidence from Multinational Firms By Vanessa Alviarez; Javier Cravino; Natalia Ramondo
  30. Exchange Rates Co-movement and International Trade By Aleksandra Babii
  31. Enforcing higher labour standards within developing country value chains: Consequences for MNEs and informal actors in a dual economy By Narula, Rajneesh

  1. By: Yue Teng (School of Social Sciences, University of Trento and University of Florence, Italy); Dic Lo (Department of Economics, SOAS University of London, UK)
    Abstract: This paper explores the determinants of developing countries' export upgrading measured by export sophistication. In particular, as a response to the recent debate on China's impact on developing countries' industrialisation, we examine a new hypothesis that the considerable growth in developing countries' trade with China may serve as a source of productive investment for their export upgrading. Dynamic panel estimations based on HS 6-digit export data on 62 developing countries during 1995-2014 show the positive effects of human capital, productive investment, and absolute gains from trade with China measured by income terms of trade vis-®§-vis China. Mediation analysis finds that the positive effect of trade with China on export upgrading takes effect largely through its enhancing effect on productive investment, which supports our hypothesis. By contrast, China's direct export-downgrading impact is minor. Our findings suggest that, for developing countries, China serves more as a stimulator of capital accumulation for industrial development than a competitor in manufacturing market or a predator of natural resources. This provides an alternative to the widespread argument of China's crowding-out and re-primarisation impact on developing countries. The priority for developing countries is therefore the appropriate use of the gains from trade for productive purposes.
    Keywords: export sophistication, developing countries, China, terms of trade, productive investment
    JEL: F14 O14 O19 O25
    Date: 2019–09
  2. By: Peter Gal; William Witheridge
    Abstract: Productivity growth has declined in most advanced economies in the past two decades and there are signs that the pace of global value chain (GVC) integration has slowed in the post-crisis period. This paper explores the role of GVCs - international trade in intermediate inputs - for multi-factor productivity growth using a range of cross-country industry-level data sources. We find that greater participation in GVCs is associated with faster domestic productivity growth at the industry level. We estimate that if GVCs had continued to grow at their pre-crisis trend, productivity growth would have been around 1 percentage point faster over the subsequent five years in both manufacturing and services. We also find that the productivity-enhancing direction of trade differs between sectors. For manufacturing sectors, greater use of intermediate inputs from foreign sources (backward participation) is linked with faster productivity growth, reflecting the beneficial effects of having access to better quality or cheaper inputs. For services sectors, it is more the sales of intermediates (forward participation) that is associated with productivity gains, in line with the traditional role of services in foreign trade as providing inputs to other activities. Looking by partner country, GVC participation with higher productivity countries is particularly productivity enhancing. We also find that GVC integration spurs greater domestic innovation activity.
    Keywords: global value chains, innovation, productivity
    JEL: F14 D24 O30
    Date: 2019–10–04
  3. By: Hylke Vandenbussche; William Connell Garcia; Wouter Simons
    Abstract: What is the cost of non-TTIP for the European Union and the United States? To address this question, this paper develops a network trade model with international sector-level input-output linkages. Our model is entirely general with closed-form solutions and can be used for any trade policy experiment. We use World Input Output Data (WIOD) to simulate the effects of TTIP in terms of value added and employment. We find that a deep TTIP raises European GDP by 1.3%, and US GDP by 0.7%. The largest share of these TTIP gains result from the reduction in Non-Tariff Barriers (NTBs) rather than from the removal of tariffs. The potential gains from TTIP are higher for the EU than for the US. These findings may offer an explanation for the current US stance on TTIP.
    Date: 2018–02
  4. By: Michele G. Giuranno; Antonella Nocco
    Abstract: This paper studies the interplay between the wage gap and government spending in a small open economy facing a shock in trade policy. We consider a specific factor model with an export sector, which uses skilled labour, and an import-competing sector, which uses unskilled labour. We find the conditions under which there exists an inverse (direct) relation between trade lib-eralization (protection), which increases (decreases) the skilled-unskilled wage gap, and the level of government expenditure. We also show how either an unbalanced distribution of political bargaining power, or tariff revenue co-financing public spending may break this direct relation.
    Keywords: wage gap, trade liberalization, positive political economy
    JEL: F15 F16 H50
    Date: 2019
  5. By: Narula, Rajneesh (Henley Business School, University of Reading); Van der Straaten, Khadija (Amsterdam Business School, University of Amsterdam)
    Abstract: The capacity of Multinational Enterprises (MNEs) to upgrade economic activity in the host country is a key objective of an MNE-assisted development agenda, arguably having contributed to reducing income inequalities between countries. However, the limited evidence available suggests the gains of FDI are rarely evenly distributed within recipient countries. How do MNEs affect the extant within-country inequalities? Whether by direct or indirect action (or by inaction), MNEs can have both a positive and a negative effect on within-country social and economic inequality. We broaden our engagement with inequality beyond income levels, as this is just one aspect of inequality that shapes or impedes human development. We believe it is necessary - for both MNEs and policymakers - to have a more nuanced understanding of how, and under what circumstances, the presence of MNEs affects inequality in host economies. We therefore highlight some key issues and avenues for future research.
    Keywords: inequality, gender, FDI, employment, linkages, informality, spillovers
    JEL: D63 F23 O17 J31
    Date: 2019–09–20
  6. By: David Baqaee (UCLA)
    Abstract: We characterize comparative statics for open production network economies in general equilibrium. We generalize growth-accounting to environments with international trade, input-output networks, and arbitrary distortions. We characterize how income responds to trade shocks up to a second-order approximation, and show that our result generalizes Arkolakis et al. (2012) to environments with nonlinear input-output networks. We show how aggregate trade elasticities can be constructed from microeconomic estimates. Finally, we also show that the costs of tariffs (but not iceberg costs) can be calculated by an appro- priate summing up of deadweight loss triangles, and provide non-parametric formulae for these losses in terms of sufficient statistics. We apply our results to find that the reallocation of resources has been a drag on the incomes of industrialized countries, the presence of intermediate inputs doubles the costs of Brexit (and changes the sign on its distributional consequences), and network spill-overs mean that the main beneficiary of Trump tariffs on China may be Mexico.
    Date: 2019
  7. By: Andrea Ariu; Katariina Nilsson Hakkala; J. Bradford Jensen; Saara Tamminen
    Abstract: This paper uses unique Finnish firm-level micro data on service imports, work-force composition, and firm characteristics to examine changes in employment composition and performance of Finnish service importers during a period of a significant increase in services imports (2002-2012). We use world service export supply shocks, which we allocate to firms based on their highly specialized service input structure, as an instrument to identify the impact of service offshoring. We find that firms that increase imports of service inputs reduce employment of low-skill service workers, increase employment of (high-skilled) managers and improve their performance in terms of sales (turnover), assets, service exports, and firm survival. The employment composition and performance responses to service imports differ across firms in the manufacturing sector and those in the service sector.
    Keywords: service offshoring, employment, firm performance
    JEL: F10 F14 L80
    Date: 2019
  8. By: Roberts, Mark J.; Yi Xu, Daniel; Fan, Xiaoyan; Zhang, Shengxing
    Abstract: In this article, we use micro data on both trade and production for a sample of large Chinese manufacturing firms in the footwear industry from 2002 to 2006 to estimate an empirical model of export demand, pricing, and market participation by destination market. We use the model to construct indexes of firm-level demand, marginal cost, and fixed cost. The empirical results indicate substantial firm heterogeneity in all three dimension with demand being the most dispersed. The firm-specific demand and marginal cost components account for over 30% of market share variation, 40% of sales variation, and over 50% of price variation among exporters. The fixed cost index is the primary factor explaining differences in the pattern of destination markets across firms. The estimates are used to analyse the supply reallocation following the removal of the quota on Chinese footwear exports to the EU. This led to a rapid restructuring of export supply sources on both the intensive and extensive margins in favour of firms with high demand and low fixed costs indexes, with marginal cost differences not being important.
    Keywords: demand; export market selection
    JEL: F14 L25
    Date: 2018–10–01
  9. By: Margaret S. McMillan; Brian McCaig
    Abstract: We study the effects of domestic trade liberalization on labor markets in Botswana. South Africa is the dominant member of the Southern Africa Customs Union. As such, when South Africa liberalized trade in the 1990s, this induced large and plausibly exogenous tariff reductions for the other customs union members, including Botswana. Using labor force surveys from Botswana spanning a decade, we find that trade liberalization did not affect the relative size of industries in terms of employment. However, trade liberalization had effects within industries. We find an increase in the prevalence of working in an informal firm and self-employment, but mixed evidence of effects on unemployment. Hours worked decreased in response to trade liberalization, partially driven by the movement of workers to informal firms. Despite large increases in aggregate income, trade liberalization is associated with a reduction in monthly income, but the results are imprecise. Our results also suggest that a positive export demand shock, the 2000 African Growth and Opportunities Act, is associated with a reduction in employment in informal firms in the clothing industry.
    JEL: F1
    Date: 2019–09
  10. By: Heitor Pellegrina (New York University Abu Dhabi); Sebastian Sotelo (The University of Michigan, Ann Arbor)
    Abstract: Abstract We study how the knowledge that migrants carry over space shapes specialization and trade. Using Brazilian census data, we first document that, upon migration, farmers originating in regions specialized in a crop are more likely to grow that same crop and earn higher incomes than other farmers doing so. Second, we show that the composition of workers in terms of their region of origin correlates with regional exports, after controlling for total sectoral employment. Informed by these facts, we develop and estimate a quantitative dynamic model of trade and migration in which a region's specialization is determined, in part, by the knowledge that migrants in that region carried with them. Applying our model to the large migration of agricultural workers to the west of Brazil since the 1980s, we find that the knowledge carried by migrants contributed substantially to Brazil's recent specialization in exporting commodities, such as soybean.
    Date: 2019
  11. By: Emanuel Ornelas; Laura Puccio
    Abstract: The Brazil-Taxation dispute concerns the complaints taken to the World Trade Organisation by the European Union and Japan against seven different Brazilian industrial subsidy programmes. One concerned the automotive sector and represents a clear case of policies dictated by strong domestic political-economy forces, with little attention to impacts on consumers or imports. The ensuing WTO dispute raises important issues concerning the WTO-compatibility of subsidy measures. In particular, the Appellate Body (AB) reversed the panel findings with respect to two issues: the extent to which subsidy measures can be exempted from complying with National Treatment rules under the General Agreement on Tariffs and Trade, and the identification of local content requirements (LCRs), which are prohibited under the Agreement on Subsidies and Countervailing Measures (SCM). In particular, the AB considered that subsidies, if not based on discriminatory taxation, could be justified under the GATT and could have some discriminatory elements without violating the National Treatment disciplines. Furthermore, it concluded that legitimate eligibility criteria under a subsidy programme should not be construed as prohibited LCRs under the SCM. However, the test devised by the AB to distinguish legitimate eligibility criteria from prohibited LCRs could facilitate circumvention of the LCRs prohibition under the SCM.
    Keywords: trade policy, dispute settlement, industry subsidies, international trade rules, national treatment, local content requirements
    JEL: F13 F53 F51
    Date: 2019–10
  12. By: Martina Lawless; Zuzanna Studnicka
    Abstract: In this paper we present new empirical evidence on the relationship between exporting experience and the duration of export relationships at the firm-product-destination level. Our starting hypothesis that more experienced exporters would have longer lived product-market trade relationships is quite strongly rejected in baseline specifications. However,we find that when we introduce interaction effects between experience and product scope and also between experience and similarity to the firm's core export product, our results change considerably. These findings suggest that at some level of experience as an exporter there is a decline in the marginal return on the positive effects on survival of product diversification and proximity. We suggest that this is evidence that more experienced firms launch product-destination pairs further away from their core competence and/or into more risky markets which therefore increases the risk of failure of any individual product-destination pairing.
    Keywords: Duration of trade; Survival models; Export experience; Multi-product firms
    JEL: F10
    Date: 2019–09
  13. By: Carballo, Jerónimo; Ottaviano, Gianmarco I. P.; Martincus, Christian Volpe
    Abstract: We use detailed data on exporters from Costa Rica, Ecuador and Uruguay as well as on their buyers to show that: aggregate exports are disproportionally driven by few multi-buyers exporters; and each multi-buyer exporter's foreign sales of any product in a given destination are in turn accounted for by a dominant buyer. We propose an analytically solvable multi-country model of endogenous selection in which dominant exporters, dominant products and dominant buyers emerge in parallel as multi-product sellers with heterogeneous technologies compete for buyers with heterogeneous needs. The model not only provides an explanation of the existence of dominant buyers but also makes specific predictions on how the relative importance of dominant buyers should vary across export destinations depending on their market size and accessibility. We show that these predictions are borne out by our data and discuss their welfare implications in terms of gains from trade.
    Keywords: Firm heterogeneity; taste heterogeneity; import-export relations; competition; selection
    JEL: J1
    Date: 2018–05–01
  14. By: Mohammad Farhad; Michael Jetter
    Abstract: Does trade openness systematically imply bigger governments, as proposed by Rodrik (1998)? This paper presents a novel and more refined explanation for when and why international trade may enlarge the public sector. We propose that trade openness is associated with bigger governments if (i) the price volatility of a country’s export basket is substantial and (ii) the country is democratic. The first condition satisfies the prior that open trade barriers indeed introduce uncertainty and external risk – something that is not necessarily the case for all trade. The second condition ensures that the people’s desire for greater economic security can be realized through government spending. Empirical evidence for 143 countries (accounting for approximately 96 percent of world population) from 2000-2016 is consistent with this hypothesis. Exploring areas of public spending, we find intuitive patterns: Consistent with the compensation hypothesis, government spending on economic affairs and housing increases significantly with trade openness, whereas public spending on education, health care, and the military are not immediately concerned. As with our general result, this is only the case in democracies that are subject to high price volatility on the global market.
    Keywords: economic globalization, trade openness, government size, export price volatility, democracy
    JEL: F14 F41 H10
    Date: 2019
  15. By: Chen-Ti Chen; John M. Crespi (Center for Agricultural and Rural Development (CARD)); William Hahn; Lee Schulz (Center for Agricultural and Rural Development (CARD)); Fawzi Taha
    Abstract: Abstract: This paper examines how comparative advantages of major beef exporters changed following the 2003 bovine spongiform encephalopathy outbreak (BSE), which significantly disrupted the U.S. beef trade until approximately April 2007. Using longitudinal data on beef export values and constructed revealed comparative advantage measures, we show that while some measure of the long-run impacts of BSE on U.S. beef export competitiveness have returned to pre-2003 levels, the U.S.’s comparative advantage has not. We also examine a hypothetical scenario of no BSE event in 2003 and predict what exporters’ competitiveness would have looked like. The authors discuss the implications for recent trade disruptions.
    Date: 2019–09
  16. By: Bee Yan Aw; Yi Lee; Hylke Vandenbussche
    Abstract: We develop and structurally estimate a trade model in order to identify the importance of consumer taste for exporters. The model separates taste from quality and productivity (TFPQ) at the firm-product level. Export data by destination countries allow us to identify the level of taste from consumer heterogeneity across destinations. We decompose export revenue into the contribution of taste, quality and costs. We find that taste is very important and explains about 50% of the variation in export revenue. Productivity (TFPQ) differences between firm-products become more prominent than taste in explaining export success only when the cost elasticity of improving quality is high
    Date: 2018
  17. By: Michael Devereux; Wei Dong; Ben Tomlin
    Abstract: Using highly disaggregated transaction-level trade data, we document the importance of new firm level trade partner relationships and the addition of new products to existing relationships in driving long-run import flows. Moreover, we find that these margins are sensitive to movements in the exchange rate. We rationalize these findings in a model of international trade with endogenous matching between heterogenous importers and exporters. Simulations of the model highlight a new channel through which exchange rate movements can affect trade—through the short-run formation of new trade relationships and the range of products traded within relationships—which can impact long-run flows.
    Keywords: Exchange rates; Firm dynamics; International topics
    JEL: F1 F4
    Date: 2019–10
  18. By: Fatih Guvenen (University of Minnesota); Dylan Rassier (Bureau of Economic Analysis); Kim Ruhl (University of Wisconsin); Raymond Mataloni (U.S. Department of Commerce)
    Abstract: We show how the offshore profit shifting of U.S. multinational firms affects the measurement of the U.S. economy. Relative to the unadjusted measures, productivity growth increases, the labor share of income decreases, the trade deficit shrinks, and the return to U.S. direct investment abroad is closer to the return on foreign direct investment in the United States.
    Date: 2019
  19. By: Iizuka, Michiko (National Graduate Institute for Policy Studies, Japan); Pietrobelli, Carlo (UNU-MERIT, and University Roma Tre); Vargas, Fernando (UNU-MERIT, and Inter†American Development Bank)
    Abstract: This paper tries to broaden the scope and understanding of innovation in the mining sector, with a focus on emerging countries based on the experience of Latin America. It discusses the innovation processes that are developing in the mining sector of emerging countries, and uses the global value chains (GVC) approach to analyze the potential available to local firms. The focus is on all forms of innovation, not only those eventually subject to patenting, to include innovations in products and processes, but also in business, marketing and organizational models and practices. The new features of scientific knowledge applied to the mining sector (e.g. ICT, new materials, biotechnology) open new opportunities for new suppliers to enter and add value in mining GVCs, and we illustrate this point with specific examples of Latin American suppliers. However, in developing this argument, we cannot forget that in most of Latin American mining there is insufficient supply of local knowledge, indicators of R&D expenditures and researchers involved show a significant lag with respect to advanced countries. Multinational mining companies have not traditionally conducted intensive R&D activities near their operations, and local universities do not tend to specialize in scientific topics directly linked to the mining industry. The paper concludes by arguing that there is a need to rethink and innovate policy approaches, if countries aim at scaling up and broadening the many good examples of innovative suppliers.
    Keywords: Global value chains, Natural resources, Mining, Latin America, Innovation and learning, public policies
    JEL: O13 O32 O43
    Date: 2019–09–20
  20. By: Sinesipho Siswana (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: Is it export diversification or export specialization that is more useful towards promoting economic growth in the BRICS economies? To answer this query, we estimate a growth model augmented with trade activity to capture the diversification-concentration trade-off with economic growth over the period of 1995 to 2017. Our baseline Fully-Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) regressions confirm a negative effect of diversification on growth whereas concentration has a positive effect on growth. We further estimate panel quantile regressions for the growth specifications and find that i) moderate levels of concentration are best for economic growth ii) diversification adversely affects growth across all quantiles though the effect diminishes as one approaches higher levels of diversification. This points to a semi inverted U-shaped diversification schedule, of which the BRICS countries have crossed their ‘inflexion point’ of development and need to re-specialize their export baskets.
    Keywords: Export specialization; Export diversification; Economic growth; BRICS countries; asymmetries; Quantile regressions.
    JEL: C23 C33 F10 F13 F14 O40
    Date: 2019–09
  21. By: Jianhua Duan; Xuefeng Qian; Kuntal K. Das (University of Canterbury); Laura Meriluoto (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: This study replicates Ahn, Khandelwal, and Wei’s (2011) model of intermediary trade. Our study produces two main results. First, we are able to reproduce empirical evidence for AKW’s three main predictions for Chinese exports. This is impressive because much of the data for our replication are independently sourced. However, when we subject their model to additional tests, we find that the evidence is not robust. Using more recently available data to test their first prediction, we estimate coefficients that are wrong-signed and significant. When we re-analyze the evidence supporting their second and third predictions, we find that the full sample results mask significant heterogeneity across Chinese regions. In many cases, key coefficients are insignificant. In a few cases, they are wrong-signed and significant. Finally, using multiple versions of a key variable measuring the number of required import documents by country, we discover that the results are not robust across versions.
    Keywords: Intermediaries, Exports, Productivity, Heterogeneous firms, Chin
    JEL: F1
    Date: 2019–10–01
  22. By: Robert Lehmann
    Abstract: In this study, we systematically evaluate the potential of a bunch of survey-based indicators from different economic branches to forecasting export growth across a multitude of European countries. Our pseudo out-of-sample analyses reveal that the best-performing indicators beat a well-specified benchmark model in terms of forecast accuracy. It turns out that four indicators are superior: the Export Climate, the Production Expectations of domestic manufacturing firms, the Industrial Confidence Indicator, and the Economic Sentiment Indicator. Two robustness checks confirm these results. As exports are highly volatile and turn out to be a large demand-side component of gross domestic product, our results can be used by applied forecasters in order to choose the best-performing indicators and thus increasing the accuracy of export forecasts.
    Keywords: export forecasting, export expectations, export climate, Europe
    JEL: F01 F10 F17
    Date: 2019
  23. By: Michael Sposi (Southern Methodist University)
    Abstract: Differential changes in the age distribution across countries has sharp implications for the evolution of global imbalances. I develop a dynamic, multicountry, Ricardian trade model with endogenous labor supply to measure the effect of demographics on trade imbalances across 28 countries from 1970-2014. Changes in the age distribution impact a country's net exports directly through the demand for net saving and indirectly through relative labor supply. Counterfactually removing demographic-induced changes to saving demand imply substantially lower net exports in emerging economies that experience relatively fast increases in working age shares, and higher net exports in advanced economies that experienced flat, and even declining, working age shares. On average, one percentage point increase in a country's working age share relative to the world increases the ratio of net exports to GDP by 14 percentage points. This finding helps reconcile the allocation puzzle.
    Date: 2019
  24. By: Sunil Kanwar (Department of Economics, Delhi School of Economics); Stefan Sperlich (Geneva School of Economics and Management, University of Geneva)
    Abstract: In this paper we study the relationship between the strength of intellectual property (IP) protection that less developed countries provide and foreign direct investment (FDI) flows into these countries, in the post-TRIPs period 2004-2015. Our sample period is highly appropriate insofar as it comes after the ten year period that the developing countries were allowed for implementing IP reforms in accordance with the Trade-Related Intellectual Property Rights (TRIPs) agreement. Further, it is long enough to permit the modelling of a delayed FDI response to the IP reform stimulus. Our modelling strategy attempts to capture the heterogeneity of the impact of the IP reform on the FDI inflows by estimating a conditional difference-in-differences specification. Thus, we allow for the fact that the impact of IP reform can vary significantly across countries depending on the magnitude of intellectual property that they own for which they seek such protection, for that would indicate the importance that they attach to IP protection. Estimating a varying coefficient model, our results do not provide evidence of a statistically significant effect of IP reform on FDI inflows into less developed countries, nor do we find that the effect of such reform is significantly stronger for countries that own relatively larger amounts of intellectual property. These results hold contemporaneously as well as with lags. Instead, FDI inflows appear to be driven by market size and domestic investment climate variables. Disaggregating our sample into the sub-groups of developing countries and least developed countries, we find that our overall results for less developed countries are driven by the sub-group of developing countries.
    Keywords: Foreign direct investment, Intellectual property protection
    JEL: O34 O24 O11
    Date: 2019–09
  25. By: Jonathan Eaton (Pennsylvania State University); Francis Kramarz (CREST, ENSAE); Samuel Kortum (Yale University)
    Abstract: Firm-level customs and production data reveal both the heterogeneity and the granularity of individual buyers and sellers. We seek to capture these firm-level features in a general equilibrium model that is also consistent with observations at the aggregate level. Our model is one of product trade through random meetings. Buyers, who may be households looking for final products or firms looking for inputs, connect with sellers randomly. At the firm level, the model generates predictions for buyer-seller connections and the share of labor in production broadly consistent with observations on French manufacturers and their customers in other countries of the European Union. At the aggregate level, firm-to-firm trade determines bilateral trade shares as well as labor's share of output in each country.
    Date: 2019
  26. By: Ryan Chahrour (Boston College); Luminita Stevens (University of Maryland)
    Abstract: We find that observed cross-country price differences primarily reflect regional market segmentation occurring within countries. Using a model of price setting subject to costly search, we show that identification of national versus regional segmentation requires augmenting price data with regional trade flow data. Calibrating the model to data from U.S. and Canadian regions, we estimate substantial regional trade frictions: U.S. producers are three times more likely to sell to retailers in their own region than in the “away” region of the United States, and only slightly less likely to sell to a region in Canada, controlling for market size differences. Canadian producers have an even stronger home bias: they are seven times more likely to sell in their own region than in the “away” region in Canada, and 11 times more likely to sell in their own region than in a U.S. region. Models that do not explicitly account for regional home bias can misstate the severity of segmentation at the national border.
    Date: 2019
  27. By: Aleksandra Sojka (Department of Social Sciences, Carlos III University in Madrid, Spain.); Jorge Diaz-Lanchas (European Commission - JRC); Federico Steinberg (Autonomous University of Madrid & Elcano Royal Institute, Madrid, Spain)
    Abstract: The Transatlantic Trade and Investment Partnership (TTIP) generated an unprecedented contestation across Europe. In this paper, we focus on the sources of such backlash and analyze opinions on free trade and the specific agreement. Not accounting for the fact that these preferences are correlated could lead to biased conclusions about their determinants. To remediate this, we construct a set of bivariate probit models and calculate joint probabilities for the different types of preference configurations. We validate that support for free trade and support for the TTIP have similar, but not identical foundations. Inconsistent preferences are rooted in individual values, EU attitudes, and political cues, as well as treaty partner heuristics. Our innovative empirical approach offers an improved understanding of trade attitudes within EU's multilevel context.
    Keywords: Rhomolo, Region, Free Trade, Public Opinion, TTIP
    Date: 2019–09
  28. By: David Kohn (Pontificia Universidad Católica de Chile); Fernando Leibovici (Federal Reserve Bank of St. Louis); Michal Szkup (University of British Columbia)
    Abstract: We investigate the extent to which frictions in financial markets affect the gains from trade liberalization. We study a small open economy populated with entrepreneurs heterogeneous in productivity and net worth who can trade internationally and are subject to financing constraints. We calibrate the model to match key features of Colombian plant-level data and use it to quantify the role of credit frictions in shaping the economy's response to trade liberalization. We find that frictions in financial markets slow down the response of capital and output in the aftermath of trade liberalization; in contrast, the dynamics of exports adjustment are largely independent of financial development. We document evidence consistent with these findings for the Colombian trade liberalization in the early 1990s.
    Date: 2019
  29. By: Vanessa Alviarez (University of British Columbia); Javier Cravino (University of Michigan); Natalia Ramondo (UCSD)
    Abstract: We use data on the cross-country operations of multinational enterprises and their foreign affiliates to separate the components of productivity that are internationally mobile from those that are immobile. We show that the productivity factors that are embedded in firms and can be transferred globally account for about 20 percent of the observed differences in TFP across European countries, thought its importance varies widely across countries. This indicates large potential gains form convergence in `firm-embedded' productivity.
    Date: 2019
  30. By: Aleksandra Babii (Toulouse School of Economics)
    Abstract: Nominal exchange rates strongly co-move. However, little is known about the economic source of common variation. This paper examines how international trade links nominal exchange rates. First, I document that two countries that trade more intensively with each other have more correlated exchange rates against the U.S dollar. Second, I develop a general equilibrium multi-country model, where a shock to a single country propagates to the exchange rates of its trading partners and serves as a source of common variation. In the baseline three-country model, I show that the sign and the strength of correlation between exchange rates depend on the elasticities of trade balances of countries with respect to both exchange rates. As a result, the model’s prediction about the relationship between bilateral trade intensity and exchange rates correlation depends on the currency in which international prices are set. Lastly, an augmented model is calibrated to twelve countries to quantitatively assess the importance of trade linkages. I find that trade linkages alone, with uncorrelated shocks across countries, account for 50% of the empirical trade-exchange-rates-correlation slope coefficient.
    Date: 2019
  31. By: Narula, Rajneesh (Henley Business School, University of Reading, UK)
    Abstract: The 2013 Rana Plaza disaster led external stakeholders to insist on higher labour standards in apparel global value chains (GVCs). Stakeholders now expect MNEs to take 'full-chain' responsibility. However, the increased monitoring and enforcement costs of a large network of suppliers have been non-trivial. MNEs instead implement a 'cascading compliance' approach, coupled with a partial re-internalisation. Elevated costs are further exacerbated in developing countries where the informal and formal sector are linked, and cost competitiveness greatly depends on this duality. Monitoring actors in the informal sector is difficult, and few informal actors can achieve compliance. GVCs have therefore reduced informal sector engagement by excluding non-compliant actors and investing in greater automation. By seeking to strictly enforce compliance, MNEs are attenuating some of the positive effects of MNE investment, particularly the prospects for employment creation (especially among women), and enterprise growth in the informal sector. I discuss how these observations might inform other cross-disciplinary work in development, ethics, and sociology. Finally, I note implications for IB theory from the disparities between the ownership, control and responsibility boundaries of the firm.
    Keywords: informal economy, MNEs, duality, Bangladesh, compliance, GVCs
    JEL: E26 F23 J8
    Date: 2019–09–20

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