nep-int New Economics Papers
on International Trade
Issue of 2020‒06‒15
forty-one papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Global trade in final goods and intermediate inputs: impact of FTAs and reduced “Border Effects” By Franco-Bedoya, Sebastian; Frohm, Erik
  2. Global Value Chains and the Productivity of Firms in MENA countries: Does Connectivity Matter? By Rym AYADI; Giorgia GIOVANNETTI; Enrico MARVASI; Chahir ZAKI
  3. Brexit: what economic impacts does the literature anticipate? By Catherine Mathieu
  4. Gains and Losses in a Trade Bloc: The Case of the East African Community By Geoffroy Guepie; Julie Schlick
  5. The International Trade and Production Database for Estimation (ITPD-E) By Borchert, Ingo; Larch, Mario; Shikher, Serge; Yotov, Yoto
  6. Beggar-thy-Neighbor or Favor thy Industry? An Empirical Review of Transatlantic Tariff Retaliation By Martin Braml
  7. Multi-product Firms and Product Quality Expansion By Van Pham; Alan Woodland
  8. High order openness By Jean Imbs; Laurent L. Pauwels
  9. The prospect of the proposed Currency Union on intra-regional trade in East African Community By Stanley, Abban
  10. Understanding Free Trade Attitudes: Evidence from Europe By Martin Braml; Gabriel Felbermayr
  11. The role of tax system complexity on foreign direct investment allocation By Leonzio Rizzo; Alejandro Esteller - Moré; Riccardo Secomandi
  12. The Winners and Losers of Immigration: Evidence from Linked Historical Data By Joseph Price; Christian vom Lehn; Riley Wilson
  13. Demand Risk and Diversification through Trade By Esposito, Federico
  14. World trade in 2020: The show must go on! COVID-19 pandemic, trade wars and deadlock at the WTO: Rules-based trade is under pressure and the EU must take the lead By Nau, Aljoscha
  15. The Benefits of Regional Trade Agreements in Africa By Fabien Candau; Geoffroy Guepie; Julie Schlick
  16. Immigrant Franchise and Immigration Policy: Evidence from the Progressive Era By Biavaschi, Costanza; Facchini, Giovanni
  17. On the Heterogeneous Effects of Sanctions on Trade and Welfare: Evidence from the Sanctions on Iran and a New Database By Felbermayr, Gabriel; Syropoulos, Constantinos; Yalcin, Erdal; Yotov, Yoto
  18. Exporting behavior and the demand for skills in German establishments By Kölling, Arnd; Mertens, Antje
  19. Global Trade and GDP Co-Movement By Francois de Soyres; Alexandre Gaillard
  20. Political Beta By Raymond Fisman; April Knill; Sergey Mityakov; Margarita Portnykh
  21. Immigration, Innovation, and Growth By Burchardi, Konrad B.; Chaney, Thomas; Hassan, Tarek Alexander; Tarquinio, Lisa; Terry, Stephen
  22. The Investment Cost of the U.S.-China Trade War By Mary Amiti; Sang Hoon Kong; David E. Weinstein
  23. The spatial extent of network externalities in international migration By Roberto Basile; Francesca Licari
  24. Market power, productivity and distribution of wages: theory and evidence with micro data By Oleksandr Shepotylo; Volodymyr Vakhitov
  25. How Taiwan and South Korea contained the spread of Covid-19 and why this matters for attracting FDI By Bickenbach, Frank; Liu, Wan-hsin
  26. Pandemics, food security and the gains from trade By Mountford, Andrew
  27. A Comparison of Agricultural, Industrial and Services Sector Impact on Trade Balance: A Case Study of Pakistan By Muzammil, Muhammad
  28. Prudence versus Predation and the Gains from Trade By Garfinkel, Michelle; Syropoulos, Constantinos; Zylkin, Thomas
  29. The Consequences of a more resource efficient and circular economy for international trade patterns: A modelling assessment By Rob Dellink
  30. Education and migration: insights for policymakers By Björn NILSSON
  31. The Fruits of El Dorado: The Global Impact of American Precious Metals By Leticia Arroyo Abad; Nuno Palma
  32. Do potential migrants internalise migrant rights in OECD host societies? By Michel Beine; Joël Machado; Ilse Ruyssen
  33. US-China Economic Relations: From Conflict to Solutions—Part I By Adam S. Posen; Jiming Ha
  34. US-China Economic Relations: From Conflict to Solutions—Part II By Adam S. Posen; Jiming Ha
  35. Non-Gravity Trade By Markus Brueckner; Ngo Van Long; Joaquin L. Vespignani
  36. Trade in Technology: A Potential Solution to the Food Security Challenges of the 21st Century By Thomas W. Hertel; Uris L.C. Baldos; Keith O. Fuglie
  37. From Boycott to Buycott: Is Activism from the North Good for the South? By Patrice Cassagnard; Tendai Espinosa
  38. Effects of Changes in Exchange Rate Volatility on Short-run Equilibrium in International Oligopoly By Tetsuya Shinkai; Takao Ohkawa; Makoto Okamura; Ryoma Kitamura
  39. The Role of Global Economic Conditions in Forecasting Gold Market Volatility: Evidence from a GARCH-MIDAS Approach By Afees A. Salisu; Rangan Gupta; Elie Bouri
  40. A comparative study of export processing zones in the wake of sustainable development goals: Cases of Botswana, Kenya, Tanzania and Zimbabwe By Richard Adu-Gyamfi; Simplice A. Asongu; Tinaye S. Mmusi; Herbert Wamalwa; Madei Mangori
  41. Exports vs. Investment: How Public Discourse Shapes Support for External Imbalances * By Federico Maria Ferrara; Jörg Haas; Andrew Peterson; Thomas Sattler

  1. By: Franco-Bedoya, Sebastian; Frohm, Erik
    Abstract: International trade in manufacturing goods has risen strongly over the past decades, contributing to the expansion of global value chains (GVCs). This paper studies how two factors contributed to this rise since 1970: (i) declining “border effects” that are arguably related to the ICT revolution that started around 1985, and (ii) the implementation of Free Trade Agreements that have gotten deeper over time. We take advantage of the identification of the time dimension in a panel setting to capture the emergence of GVCs by disentangling domestic and international trade in final goods and intermediate inputs. According to our results, diminished border effects account for the bulk of the increase in international trade in manufactured goods. The cost of a national border is estimated to have fallen by around 10% per year for total manufacturing trade since the 1970s. The decline has been 13% per year for exports of final goods and 8% for intermediate inputs, highlighting the importance of reduced border effects for enabling international trade in the age of GVCs. Moreover, we show that it is important to control for different border effects for final goods and intermediate inputs when estimating the trade impact of FTAs in gravity equations. With this enhancement, our results suggest that FTAs increase trade by 54% after ten years. We also find evidence that FTAs that are more recent have a greater trade effect than those signed in earlier periods. JEL Classification: F13, F14, F15, F23
    Keywords: border effect, free trade agreements, global value chains, international trade
    Date: 2020–05
  2. By: Rym AYADI; Giorgia GIOVANNETTI; Enrico MARVASI; Chahir ZAKI
    Abstract: We provide new evidence on the participation of firms within Global Value Chains (GVCs) for a large pool of MENA countries included in the World Bank Enterprise Surveys (WBES). Making use of several firm-level GVC participation indices, we find a positive association with firm productivity gains. Based on this result, we further investigate the complexity of GVC relationships and examine how sector/country connectivity affects firm productivity. Using a multi-level model, we augment our analysis by including centrality indicators calculated on the intermediate trade network, constructed from the EORA input-output tables. Positioning within the network structure of trade in intermediate products also plays a role. Our results indicate a positive effect of the connectivity of the sector on the Total Factor Productivity (TFP) of firms. Results remain robust after we control for the endogeneity between firm productivity and participation in GVCs.
    Keywords: global value chains, firm heterogeneity, MENA region, trade networks, productivity.
    JEL: F14 F15 L23 L25
    Date: 2020
  3. By: Catherine Mathieu (Observatoire français des conjonctures économiques)
    Abstract: The results of the June 2016 referendum in favour of the UK leaving the EU opened a period of huge economic and political uncertainty in the UK, and in the EU27. A large number of official and academic analyses have been published that address the economic impact of different modalities of Brexit. Section 1 analyses possible models for the future UK-EU relationship, from remaining in the single market and in the customs union, to a Free Trade Agreement (FTA) or world trade organization (WTO) rules. Section 1 also discusses the future of UK trade regulations (tariff and non-tariff barriers, trade agreements) and the various channels through which Brexit could have an impact on the UK economy (trade, foreign direct investment (FDI), migration, productivity, fiscal policy). The UK must make a trade-off between ensuring access to the EU market and increasing its regulatory autonomy. Section 2 surveys studies released on the impacts of Brexit, over short-and long-term horizons, under different scenarios, from a soft Brexit to a hard Brexit and a no deal scenario. These studies provide very different results depending on the methods they use and the assumptions they adopt on the future relationship between the UK and the EU27, mainly on how they view the effects of trade openness and regulations on productivity, in level as in growth rate. Studies usinggravity models and computable general equilibrium models generally find negative but small effects on UK GDP. Some studies increase these effects by adding the negative impact of a less open UK economy on labour productivity growth, even if Brexiteers want to open the UK to non-EU economies. Others believe that a liberalisation shock could boost output growth, but the UK is already a very liberal economy. The impact of Brexit on the GDP of the EU27 countries is on average 4 to 5 times smaller than on UK GDP, although some countries (Ireland in particular) are more affected. In the shorter term, uncertainty about Brexit has a negative effecton investment and exports, which is partly offset by lower interest rates and exchange rates.
    Keywords: Brexit; UK economy; EU membership; Trade agreements
    Date: 2020
  4. By: Geoffroy Guepie (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Julie Schlick (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: From birth to death in the 1970s, to rebirth in the 2000s, the East African Community (EAC) had several lives. What were the economic consequences of this regional trade agreement? This paper shows that the former EAC was inefficient in term of trade creation while on the contrary the current one has increased trade by 75%. These results are obtained with a structural gravity equation with importer-year, exporter-year effects and bilateral fixed effects. To assess the global effect of the EAC, including trade diversion and general equilibrium effects, we then use a multi-sector and multi-country model. We find that despite trade creation, the total welfare gains of the EAC is small for most countries. All members endured a depreciation of the terms of trade, trade diversion and a decrease in real wages at the exception of Kenya.
    Keywords: Trade integration,Gravity,RTA
    Date: 2019–12
  5. By: Borchert, Ingo (University of Sussex Business School); Larch, Mario (University of Bayreuth); Shikher, Serge (United States International Trade Commission); Yotov, Yoto (Drexel University)
    Abstract: This paper introduces and describes the new International Trade and Production Database that can be used for statistical estimation (ITPD-E). The ITPD-E contains consistent data on international and domestic trade for 243 countries, 170 industries, and 17 years. The data are constructed at the industry level covering agriculture, mining, energy, manufacturing, and services, so that the ITPD-E describes nearly completely the traded sectors of each economy. The time period covered commences in 2000 and extends to 2016. The ITPD-E is constructed using reported administrative data and intentionally does not include information estimated by statistical techniques. This feature and the unprecedented coverage of industries and countries with consistent international and domestic trade data renders the ITPD-E well suited for estimation of economic models, e.g., the gravity model of trade. We demonstrate the usefulness of the ITPD-E by running standard gravity regressions.
    Keywords: domestic trade; internal trade; domestic national trade; gravity estimation
    JEL: F10 F13 F14
    Date: 2020–05–18
  6. By: Martin Braml
    Abstract: Since 2018, the U.S. and the EU have been erecting additional tariff barriers against each other. This study takes stock of existing transatlantic retaliatory tariffs and examines three different motives that explain how products are chosen to qualify for tariff retaliation. These channels are: shifting the tariff incidence abroad according to optimal tariff theory, concentrating losses abroad in politically sensitive regions or industries, and rent-seeking by domestic lobbyists. I find striking evidence for the presence of all three channels. Moreover, this study performs an ex-post impact evaluation of EU tariffs implemented in response to U.S. steel and aluminum tariffs: within one year, imports of treated products from the U.S. fell by 36 percent. Trade diversion can only partially offset this decline in imports. Finally, this study outlines a concept for a transparent protocol which could be applied to the selection of products for retaliation purposes.
    Keywords: Retaliatory tariffs, countervailing duties, optimal tariff theory, Beggar-thyNeighbor, EU–US trade, GATT
    JEL: F13 F14 F53
    Date: 2020
  7. By: Van Pham (School of Economics, UNSW Business School); Alan Woodland (School of Economics, UNSW Business School)
    Abstract: This paper develops and analyzes a model of international trade comprising multiproduct firms that can produce a range of product varieties distinguished by quality. First, it analyses the within-firm distribution of product quality and argues that firms’ export decisions are sensitive to their sizes and their product quality level. Specifically, a firm successfully exports both its high-end products and low-end products. Also, the sales of its top-end products relative to sales of its lower-end products is sensitive to the extent to which effective labour costs rise with quality. Second, the paper explores the heterogeneous effects of trade liberalization on multi-product firm behaviour and quality range choices. Under trade liberalization, small domestic firms experience a shrinkage of their product quality range, while even the new small-sized exporters narrow their product quality range to focus on an export variety. In contrast, existing exporters (large firms) can compete on both price and quality under trade liberalization by expanding their export product range toward both the low-end and high-end varieties. There is a greater expansion toward the lower-end varieties relative to the higher-end varieties under trade liberalization, this relative expansion decreasing as the variable trade cost decreases.
    Keywords: Firm heterogeneity, Multiproduct firms, Quality range of varieties, Exports, Productivity
    Date: 2020–03
  8. By: Jean Imbs; Laurent L. Pauwels
    Abstract: Conventional measures of openness are based on direct trade. They imply foreign shocks are irrelevant to sectors that do not trade directly across borders, e.g., services. But shocks propagate via the supply chain: Sectors that trade indirectly across borders via downstream linkages are affected by foreign shocks. We introduce a measure of openness based on indirect trade, computing the fraction of downstream linkages that cross a border. The measure, labeled “High Order Trade” (HOT), is computed using recently released data on international input-output linkages for 50 sectors in 43 countries, including services. HOT correlates positively with conventional trade measures across countries, much less across sectors as many more are open according to our measure. Some services are among the most open sectors in some economies, and services generally rank at the middle of the distribution. HOT correlates significantly with sector productivity, growth, and synchronization; conventional measures of trade do not. We introduce an instrument for HOT using network theory. We show HOT causes productivity and synchronization, but not growth.
    Keywords: Measuring Openness, Global supply chains, Growth, Productivity, Synchronisation
    JEL: E32 F44
    Date: 2020–05
  9. By: Stanley, Abban
    Abstract: Currency union with a common policy is welfare superlative to the use of sovereign currencies even if a member of the East African Community uses a convertible currency. In this background, the study evaluates whether adopting a common currency will lead to trade using an augmented gravity model of international trade. Additionally, the study investigates the effect of tariffs and nontariff on trade in EAC. The results show that adopting a common currency will lead to trade. Also, the study showed that trade will be enhanced by six-folds when tariffs and nontariff is eliminated. The study concludes that a currency union with a common policy could serve as a panacea when the appropriate institutional policy framework is adopted to ensure transparency by reducing trade and non-trade barriers.
    Keywords: Currency union, Sovereign currencies, tariff, nontariff, gravity model of international trade, panacea, Optimal Currency Area, intra-regional trade
    JEL: E6 F1 F15 F4 F45
    Date: 2020–04–11
  10. By: Martin Braml; Gabriel Felbermayr
    Abstract: Our paper shows that individual preferences for open-market policies are mainly shaped by trust in institutions and not economic self-interest. On the basis of the Eurobarometer, a comprehensive semiannual survey that monitors public opinion in EU Member States, we exploit data on attitudes towards the Transatlantic Trade and Investment Partnership (TTIP), free trade, protectionism, and globalization. We find that preferences for open-market trade policies cannot be sufficiently explained by variables that, according to classical trade theory, typically determine personal advantages. Nevertheless, rational considerations follow expected patterns, in particular when individuals express strong preferences. A spatial analysis at the European NUTS-2 level shows that measures of regional trade exposure and other macroeconomic determinants serve as well-suited predictors for the substantial cross-regional variation in the support for globalization. Country specific narratives are predominant drivers of individual open-market attitudes.
    Keywords: International political economy, globalization, free trade attitudes
    JEL: F13 F53 F68
    Date: 2020
  11. By: Leonzio Rizzo; Alejandro Esteller - Moré; Riccardo Secomandi
    Abstract: We present new cross-country empirical evidence that tax system complexity affects international investments. The evidence comes from a database of foreign direct investment (FDI) bilateral flows for all OECD countries over the 2013 2016 period. We used the dataset from the Doing Business survey, which collects several measures of tax system complexity and effective tax rates. By means of a gravity model, we considered the impact of destination and parent country characteristics on firm investment decisions. An increase in the difference between tax complexity in the home country and the destination country is related with an increase in FDI outflows from home to destination. We also found that this effect is driven by small countries. We did not observe any impact of tax rate differentials on FDI outflows.
    Keywords: FDI flows; tax complexity; gravity model
    JEL: H32 H29 H25
    Date: 2020–05–29
  12. By: Joseph Price; Christian vom Lehn; Riley Wilson
    Abstract: Using recent innovations in linking historical U.S. Census data, we study the economic impacts of immigration on natives, including their geographic migration response. We find that the arrival of foreign immigrants significantly increases both native out-migration and in-migration. Accounting for this selective geographic migration, we find smaller economic impacts of immigration for native workers than previous work, including no positive impact on worker incomes. We present evidence of significant “losers” from increased immigration, namely workers who appear to be displaced by immigrant labor and move out of their local labor market, whereas the workers who remain see significant benefits. We also find that younger and lowerskilled workers are “losers” from increased immigration, whereas older and higher-skilled workers are “winners.”
    JEL: J21 J31 J61 J62 N32
    Date: 2020–05
  13. By: Esposito, Federico
    Abstract: I develop a theory of risk diversification through geography. In a general equilibrium trade model with monopolistic competition, characterized by stochastic demand, risk-averse entrepreneurs exploit the spatial correlation of demand across countries to lower the variance of their global sales. I show that the model-consistent measure of demand risk, the “Diversification Index”, depends on the multilateral covariance of a country's demand with all other markets. The model implies that both the probability of entry and the level of trade flows to a market are increasing in the Diversification Index. The firms' risk diversification behavior can generate, upon a trade liberalization, a strong competitive pressure on prices, which in general equilibrium can lead to higher welfare gains from trade than the ones predicted by trade models with risk neutrality. Using a panel of domestic and international sales of Portuguese firms, I estimate “risk-augmented” gravity regressions, which show that the Diversification Index significantly affects trade patterns at the extensive and intensive margins. I quantify that the risk diversification channel increases welfare gains from trade by 16% relative to models with risk neutrality. Finally, the quantitative application highlights the role of demand uncertainty in shaping the economic consequences of the recent integration of China in the global economy.
    Keywords: Demand risk; diversification; welfare gains from trade; international trade
    JEL: F1 F10 F15
    Date: 2020–05–20
  14. By: Nau, Aljoscha
    Abstract: Rules-based trade is under attack and the WTO is at risk of marginalization. The COVID-19 pan-demic and its detrimental effects on public health, global supply- and value chains and industrial production, have brought back national export restrictions and stopped the free flow of goods and people. Buzz words such as 'decoupling', 'sovereignty' and 'autarky' quickly returned to the global stage. Meanwhile the World Trade Organization (WTO) is facing an existential crisis due to a deadlock in negotiations, blockage of institutional reforms and paralysis of the dispute set-tlement mechanism (DSM). However, this policy paper argues that there might be hope, with countries experiencing the effects of disrupted trade and understanding: The show must go on! We are at crossroads: The global COVID-19 pandemic could either lead to more state interfer-ence, decoupling and a marginalization of global trade action or it calls for an unprecedented level of multilateral cooperation. This analysis claims that trade can serve as a powerful, low-cost, and immediate crisis response by securing the free flow of medical goods and personal protective equipment (PPE), lowering tariffs, and coordinating logistics. Second, trade will be essential for a speedy recovery of the global economy. Geographical diversification of supply- and value chains must not mean decoupling, and genuine COVID-19 measures to protect public health and security should not become a fig-leaf for protectionist policies. However, there is no alternative to WTO reform, given that the economic balance in the world has changed - while the WTO has not. Besides institutional reforms, the WTO and its members now have the chance to update its rulebook and to advance future trade policy on services, digital trade/e-commerce, and sustainability, as well as to restore a functional enforcement and dispute settlement mechanism. The EU can act as an 'honest broker' between the USA and China. Establishing an interim appeal arbitration mechanism in early 2020, the EU and Canada have taken the first steps. Onwards, the EU should take the lead to form a like-minded coalition of progress and to become a global standard-setter of its own. Now more than ever, the WTO needs to adapt to internal- and external shocks: The show must go on!
    JEL: F13 F02 H12
    Date: 2020
  15. By: Fabien Candau (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Geoffroy Guepie (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Julie Schlick (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: Despite the marginalization of Africa in the world trade system, this article shows that African Regional Trade Agreements (RTAs) ushered an era of economic integration with strong trade creation effects over the period 1965-2012. Some agreements failed to deliver the expected trade gains, but the Common Market for Eastern and Southern Africa (COMESA), the Economic Community of West African States (ECOWAS), and the Southern African Development Community (SADC) have significantly increased trade between members. Based on this analysis, a simple quantitative trade model is used (Arkolakis et al. 2012) to compare trade and welfare with and without these agreements. These counterfactual exercises show that RTAs have strongly affected trade costs, multilateral resistances and finally trade flows but with small effects on welfare.
    Date: 2018–12
  16. By: Biavaschi, Costanza (Norwegian University of Science and Technology (NTNU)); Facchini, Giovanni (University of Nottingham)
    Abstract: What is the role played by immigrant groups in shaping migration policy in the destination country? We address this question exploiting cross-state variation in U.S. citizens' access to the franchise, due to the presence of residency requirements. First we document that naturalized immigrants were more geographically mobile than natives. Second, congressmen representing districts with large numbers of naturalized U.S. citizens were more likely to support an open migration policy, but this effect is reversed once we account for residency requirements. Our results indicate that electoral accountability of U.S. congressmen to naturalized immigrants was a key factor in explaining this outcome.
    Keywords: immigration policy, political economy
    JEL: F22 J61
    Date: 2020–04
  17. By: Felbermayr, Gabriel (Kiel Institute & Kiel University); Syropoulos, Constantinos (Drexel University); Yalcin, Erdal (HTWG Konstanz); Yotov, Yoto (Drexel University)
    Abstract: Using a new, comprehensive database, we study the impact of sanctions on international trade and welfare. Specifically, capitalizing on the latest developments in the structural gravity literature, we quantify the partial and general equilibrium effects of sanctions. Starting with a broad evaluation of the impact of sanctions, we carefully investigate the case of Iran. We find that the effects are significant but also widely heterogeneous across sanctioning countries and dependent on the direction of trade, even within the European Union. We also perform a counterfactual analysis of removing the sanctions on Iran, which translates our partial estimates into sizable and heterogeneous (across both countries and sectors), but also intuitive, general equilibrium effects within the same framework.
    Keywords: Sanctions; Effectiveness of Sanctions; Structural Gravity
    JEL: F13 H50 N40
    Date: 2020–05–16
  18. By: Kölling, Arnd; Mertens, Antje
    Abstract: The analysis deals with the influence of exporting on the demand for workers with different skill levels. Previous literature suggests that this includes two major topics. First, productivity of exporting firms may increase due to learning facts after entering international markets and/or be higher initially due to selfselection of firms into exporting. Second, exporting potentially leads to a change in the employment structure towards highly skilled workers. We applied a conditional difference-in-difference regression model of labor demand for three different skill levels to investigate this hypothesis. For this purpose, we use German establishment panel data that covers the period from 2000 to 2014. The outcome shows that not only self-selection into exports must be controlled for but also that changes in employment seem to be skill biased in manufacturing firms starting export activities. Nevertheless, there are no corresponding findings for firms that stop exporting or establishments in the service sector respectively.
    Keywords: Export,labor demand,skills,treatment model
    JEL: F14 J23 J24 C31
    Date: 2020
  19. By: Francois de Soyres; Alexandre Gaillard
    Abstract: We revisit the association between trade and GDP comovement for 135 countries from 1970 to 2009. Guided by a simple theory, we introduce two notions of trade linkages: (i) the usual direct bilateral trade index and (ii) new indexes of common exposure to third countries capturing the role of similarity in trade networks. Both measures are economically and statistically associated with GDP correlation, suggesting an additional channel through which GDP fluctuations propagate through trade linkages. Moreover, high income countries become more synchronized when the content of their trade is tilted toward inputs while trade in final goods is key for low income countries. Finally, we present evidence that the density of the international trade network is associated with an amplification of the association between global trade flows and bilateral GDP comovement, leading to a significant evolution of the trade comovement slope over the last two decades.
    Keywords: International trade; International business cycle comovement; Networks; Input-output linkages
    JEL: F15 F44 F62
    Date: 2020–05–27
  20. By: Raymond Fisman (Boston University); April Knill (Florida State University); Sergey Mityakov (Florida State University); Margarita Portnykh (Carnegie Mellon University)
    Abstract: Using a framework akin to portfolio theory in asset pricing, we introduce the concept of “political beta†to model firm-level export diversification in response to global political risk. The main implication of our model is that a firm is less responsive to changes in political relations with a destination market when that country contributes less to (has lower political beta) or even hedges against (has negative political beta) the firm’s total political risk. This result follows the diversification logic of portfolio theory, in which an investor values a given asset depending on the asset’s comovement with his/her overall investment portfolio. We find patterns consistent with our model using disaggregated Russian firm-by-destination-country data during 1999-2011: trade is positively correlated with political relations, though the effect is far weaker for trading partners whose political relations with Russia are relatively uncorrelated with those of other partners in a firm’s export portfolio. Our results highlight the importance of viewing firms’ political relations as an undiversifiable source of risk, and more generally points to the value of modeling firms’ treatment of risks as a portfolio diversification problem.
    Keywords: Political Risk, Asset Pricing Theory; Portfolio Theory; Exports; Diversification
    JEL: F14 F23 F51 G11 G32
    Date: 2020–03
  21. By: Burchardi, Konrad B.; Chaney, Thomas; Hassan, Tarek Alexander; Tarquinio, Lisa; Terry, Stephen
    Abstract: We show a causal impact of immigration on innovation and dynamism in US counties. To identify the causal impact of immigration, we use 130 years of detailed data on migrations from foreign countries to US counties to isolate quasi-random variation in the ancestry composition of US counties that results purely from the interaction of two historical forces: (i) changes over time in the relative attractiveness of different destinations within the US to the average migrant arriving at the time and (ii) the staggered timing of the arrival of migrants from different origin countries. We then use this plausibly exogenous variation in ancestry composition to predict the total number of migrants flowing into each US county in recent decades. We show four main results. First, immigration has a positive impact on innovation, measured by the patenting of local firms. Second, immigration has a positive impact on measures of local economic dynamism. Third, the positive impact of immigration on innovation percolates over space, but spatial spillovers quickly die out with distance. Fourth, the impact of immigration on innovation is stronger for more educated migrants.
    Keywords: dynamism; Endogenous Growth; Innovation; Migrations; patents
    JEL: J61 O31 O40
    Date: 2020–05
  22. By: Mary Amiti; Sang Hoon Kong; David E. Weinstein
    Abstract: Starting in early 2018, the U.S. government imposed tariffs on over $300 billion of U.S. imports from China, increasing the average tariff rate from 2.7 percent to 17.5 percent. Much of the escalation in tariffs occurred in the second and third quarters of 2019. In response, the Chinese government retaliated, increasing the average tariff applied on U.S. exports from 5.7 percent to 20.4 percent. Our new study finds that the trade war reduced U.S. investment growth by 0.3 percentage points by the end of 2019, and is expected to shave another 1.6 percentage points off of investment growth by the end of 2020. In this post, we review our study of the trade war’s effect on U.S. investment.
    Keywords: protection; event studies; adjustment costs
    JEL: F4 E2 F00
    Date: 2020–05–28
  23. By: Roberto Basile (Department of Industrial and Information Engineering and Economics. University of L'Aquila); Francesca Licari (Italian National Institute of Statistics (ISTAT))
    Abstract: In this paper, we assess the effect of community networks on the location choice of foreign immigrants in Italy. Our results confirm the existence of strong network externalities, but they also suggest that these effects spill over the borders of local labor markets areas (LLMAs). Significant positive spatial spillovers are indeed evident up to the second-order of contiguity, while a negative (spatial competition) effect emerges at the third-order. A possible channel for the generation of these spatial spillovers is the existence of common markets for unskilled and ethnic-specific jobs.
    Keywords: Community networks, Immigration, Gravity models, Spatial dependence
    JEL: F22 J61 R23 C14 C21
    Date: 2020–05
  24. By: Oleksandr Shepotylo (Aston Universtiy, Birmingham, UK.); Volodymyr Vakhitov
    Abstract: The declining labor share in national income and rising inequality over the last four decades raise questions about causes of these trends. In order to explain these trends, we develop a theoretical model that links intra-industry distribution of wages to variation in market power of firms. The model predicts that wages depend crucially on the demand side characteristics – they decline with market power if and only if demand elasticity is increasing with firm’s output. Trade liberalization leads to expansion of more productive firms, which also increases their bargaining power, resulting in lower share of wage bill in total revenue. The model predictions are tested on a sample of Ukrainian manufacturing firms in 2001– 2007. We document that an increase in firm’s size increases its bargaining power relative to workers. We measure firm level markups, and show that they increase with firm’s output and market size. We find that wage rises with firm’s productivity, but fall with its market power. The results are robust to various model specifications estimated at the firm and industry levels.
    Keywords: wage bargaining; wage inequality; heterogeneous firms; productivity; variable markups; international trade; monopolistic competition
    JEL: D43 F12 J31
    Date: 2020–05
  25. By: Bickenbach, Frank; Liu, Wan-hsin
    Abstract: Taiwan and South Korea are generally considered to be more successful than many others in containing the spread of Covid-19. Three basic and interrelated factors have led to their success so far: efficient governance, high quality of medical research and health care, and a smart use of digital technologies. In a generalized form the same capacities - an efficient governance system, high quality research and public services and highly advanced digital skills and infrastructures - are key attributes of an adaptive and resilient business and investment environment capable of dealing with the increasing systemic and idiosyncratic societal and economic challenges in a highly globalized world. The demonstration of Taiwan's and South Korea's competence in the Covid-19 crisis should thus help them gain an advantage in attracting more FDI in the future.
    Keywords: Covid-19,Taiwan,South Korea,FDI,Corona-Krise,Taiwan,Südkorea,Ausländische Direktinvestitionen
    Date: 2020
  26. By: Mountford, Andrew
    Abstract: Why has the recent covid-19 pandemic led to the imposition of export quotas in many countries? Why is the agricultural sector highly protected in developed economies? We show how the addition of subsistence constraints to the standard models of international trade together with a potential shock to trade offers a simple explanation of these facts. This simple adaption of the standard trade model also provides a new mechanism for the existence of a ’Transfer Paradox’. A transfer of resources prior to production acts as a kind of ex ante insurance against trade disruption which mitigates the effects of the missing market for trade disruption insurance. The effect of a transfer can be large enough that both the donor and recipient benefit. Although the analysis focuses on agricultural goods it applies to any good or technology regarded as essential for production.
    Keywords: International Trade , Income Distribution, Growth and Development
    JEL: F11 F43 O43
    Date: 2020–05–30
  27. By: Muzammil, Muhammad
    Abstract: This paper aims to examine the impact of agricultural, services and industrial sector on trade balance of Pakistan and its comparison. For this purpose, we will take time series data from 1980 to 2018. In this study exchange rate, inflation and financial development are taking as a control variable while agricultural, services and industrial value addition variable change according to the model to compare the impact. For the basic analysis we will use descriptive statistics and correlation. To check the stationarity of the variable we will use Augmented-Dickey-fuller and Philips-Perron test. However, to estimate the short and long run relationship between the above model’s variable we will use Auto-Regressive-Distributor-Lag (ARDL) model. Furthermore, to check the short and long run causal relationship we can use VECM granger causality and to check the direction and magnitude of causal relationship we will use impulse response function and variance decomposition analysis. This study can provide recommendations to researchers and policy makers to reduce the range of trade deficit and move towards trade surplus. Furthermore, it also helps Government to focus on the most appropriate sector for trade balance.
    Keywords: Trade balance, Agricultural, Services and Industrial Sector, ARDL Cointegration, Causality.
    JEL: F13 F14
    Date: 2020–02–05
  28. By: Garfinkel, Michelle (Department of Economics, University of California, Irvine); Syropoulos, Constantinos (Drexel University); Zylkin, Thomas (Department of Economics, University of Richmond)
    Abstract: We analyze a dynamic, two-country model that highlights the various trade-offs each country faces between current consumption and competing investments in its future productive and military capacities as it prepares for a possible future conflict. Our focus is on the circumstances under which the effects of current trade between the two countries on the future balance of power render trade unappealing to one of them. We find that a positive probability of future conflict induces the country with less resource wealth to “prey” on the relatively more “prudent” behavior of its richer rival, and more so as conflict becomes more likely. While a shift from autarky to trade always raises the current incomes of both countries, the poorer country realizes the relatively larger income gain from trade and also devotes a relatively larger share of its income gain towards arming. Consequently, the richer country rationally chooses not to trade today when the difference in initial resource wealth is sufficiently large and is more likely to prefer autarky when the probability of future conflict is higher. An empirical analysis of the period surrounding the end of the Cold War provides suggestive evidence in support of the theory.
    Keywords: Interstate disputes; arming; investment decisions; trade openness
    JEL: D30 D74 F10 F20 F51
    Date: 2020–04–25
  29. By: Rob Dellink (OECD)
    Abstract: This report investigates the effects of a resource efficiency and circular economy (RE-CE) transition on international trade flows, using the OECD’s ENV-Linkages model. A global RE-CE policy package will cause secondary materials to become cheaper, while primary materials become more expensive to produce. By 2040, primary non-ferrous metals are projected to decline by 35-50%, primary iron & steel by 15% and primary non-metallic minerals by around 10%. Regional shifts in production and trade-related effects (shifts in the regional sourcing of the primary materials by the materials processing sectors) account for roughly one-third of the total reduction in materials use. The other two thirds of materials use reduction come from scale effects (reduced economic activity) and efficiency effects (reduced materials use per unit of output of the processed commodities).
    Keywords: circular economy, general equilibrium model, resource efficiency, trade and environment
    JEL: C68 F18 O14 Q53 O44
    Date: 2020–06–12
  30. By: Björn NILSSON
    Abstract: Connections between migration and education are numerous, both at the macro and micro level. Recognizing this implies that educational policy as well as migration policy may generate spill-over effects, either in countries implementing the policies or in countries whose citizens may be concerned by them (or both). In an era of increased global connectedness, there is thus scope for the successful implementation of coordinated policies in the areas of migration and education. To tailor policies that work, however, a solid basis of evidence needs to be constituted, and theoretical predictions need to survive empirical examination from multiple contexts. This article provides an overview of the most important findings in the economics literature regarding the role of education in the migration-development nexus, emphasizing theoretical and empirical findings of interest for policymakers. The article will draw from multiple sources in the literature, including papers presented in the annual AFD/World Bank ’Migration & Development" conference. It intends to highlight the main findings regarding the role of education in the emigration decision, and in particular the issue of endogenous selection of migrants, but also the impact that migration has on the education of migrants and of non-migrants in both origin and destination countries. It will furthermore provide some stylized facts on the evolution of migrants’ skill composition around the world. Finally, the paper will provide a discussion on the challenges source and host countries face in implementing policies to tailor migration flows.
    JEL: Q
    Date: 2019–01–21
  31. By: Leticia Arroyo Abad (City University if New York - Queens College); Nuno Palma (University of Manchester; Instituto de Ciências Sociais, Universidade de Lisboa; CEPR)
    Abstract: The quest for precious metals and trade routes during the early modern period fundamentally changed the world. What was the global impact of the large deposits of silver and gold which existed in the Americas? In this chapter, we take a global view. We find that in Europe, England and the Netherlands benefited the most. By contrast, the colonizers par excellence, Spain and Portugal, were unable to profit from their colonial expansion. In Latin America, the exploitation of precious mineral resources enabled the geographic expansion of the empire. The direct impact on other parts of the world was negligible; but the long-term political consequences of European presence shaped the world as we know it today.
    Keywords: Denmark, enclosures, land inequality
    JEL: N50 O43 Q33 F54
    Date: 2020–04
  32. By: Michel Beine (CREA, Université du Luxembourg); Joël Machado (Luxembourg Institute of Socio-Economic Research (LISER)); Ilse Ruyssen (CESSMIR, Ghent University and Université catholique de Louvain)
    Abstract: This paper analyses how countries' provision of migrant rights affects potential migrants' destination choice. Combining data on bilateral migration desires from over 140 origin countries and data on policies in 38 destination countries over the period 2007-2014, we find that potential migrants tend to favour destinations that are more open to the inclusion of immigrants into their society. In particular, better access to and conditions on the labour market, as well as access to nationality and to permanent residency significantly increase the perceived attractiveness of a destination country. These results hold for subsamples of origin countries as well as of destinations and are robust to a set of methodological concerns, including endogeneity. Moreover, results of some policies vary across types of respondents. Educational opportunities for migrants, for instance, affect the migration desires of individuals aged 15 to 24 years, but not of individuals in other age groups.
    Keywords: Migration desires, Migrants' destination choice, Migrant rights, Quality of institutions
    Date: 2019
  33. By: Adam S. Posen (Peterson Institute for International Economics); Jiming Ha (China Finance 40 Forum)
    Abstract: Outright trade war between the world’s two largest economies would be devastating to the working people of both countries, as well as destructive to the future of the entire world economy. The costs of conflict between China and the United States far outweigh the current causes of dispute in their economic relationship. These costs would be both direct, in terms of short-term losses of growth and employment, and indirect, in terms of long-term damage to the world trading system, diminishing investment and efficiency. There are points of genuine dispute between the United States and China over their economic interaction. Even if their economic significance is often exaggerated, these are legitimate points of contention and have to be addressed in a constructive manner. The analyses in this volume aim to contribute to a more reality-based consideration of both countries’ enlightened self-interests, which would yield progress on points of dispute in a manner consistent with keeping the world economy open for business.
    Date: 2018–06
  34. By: Adam S. Posen (Peterson Institute for International Economics); Jiming Ha (China Finance 40 Forum)
    Abstract: Outright trade war between the world's two largest economies would be devastating to the working people of both countries, as well as destructive to the future of the entire world economy. The costs of conflict between China and the United States far outweigh the current causes of dispute in their economic relationship. These costs would be both direct, in terms of short-term losses of growth and employment, and indirect, in terms of long-term damage to the world trading system, diminishing investment and efficiency. There are points of genuine dispute between the United States and China over their economic interaction. Even if their economic significance is often exaggerated, these are legitimate points of contention and have to be addressed in a constructive manner. The analyses in this volume aim to contribute to a more reality-based consideration of both countries' enlightened self-interests, which would yield progress on points of dispute in a manner consistent with keeping the world economy open for business.
    Date: 2019–01
  35. By: Markus Brueckner; Ngo Van Long; Joaquin L. Vespignani
    Abstract: This paper examines the relationship between countries’ bilateral trade with the United States that is not due to gravity (non-gravity trade) and the distribution of income within countries. In countries where only a small share of the population is educated, an increase in non-gravity trade is associated with a significant increase in income inequality. As education of the population increases, the correlation between non-gravity trade and income inequality becomes smaller. Non-gravity trade has no significant effect on income inequality in countries that are world leaders in education.
    Keywords: Non-Gravity Trade; Inequality; Education
    JEL: F1 E2
    Date: 2020–05–29
  36. By: Thomas W. Hertel; Uris L.C. Baldos; Keith O. Fuglie
    Abstract: The recent rise in caloric undernutrition in Sub-Saharan Africa (SSA) demonstrates the continued relevance of the Malthusian footrace between food availability and population. Sluggish growth in farm productivity in SSA has brought to the fore the key role of agricultural technology in alleviating future food insecurity. We develop a model of technology, food security and international trade with three distinct channels for technology reduce food insecurity in SSA. The first is via greater domestic R&D investment. An alternative is to import technologies from other countries with significant knowledge capital. The third role for technology to resolve the Malthusian dilemma in SSA is that of ‘virtual technology trade’, i.e., importing technological investments undertaken elsewhere through cheaper imported food. To assess the relative contribution of each channel to food security in Africa, we employ a partial equilibrium, quantitative trade model, augmented by a temporal relationship between R&D investments, knowledge capital and agricultural productivity. Over the historical period: 1991-2011 we find that direct R&D investments in SSA have been the dominant vehicle for lowering food prices in Africa. Looking forward to 2050, we find that virtual technology trade will be the most important vehicle for reducing non-farm undernutrition in Africa.
    JEL: Q16 Q17 Q56
    Date: 2020–05
  37. By: Patrice Cassagnard (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Tendai Espinosa (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: This article develops an original theoretical exploration of the potential effect of northern activism on working conditions and welfare in the South using a Bertrand-type duopoly model with endogenous prices, wages and qualities. We assume that all consumers derive the same utility from one ("northern") good but are heterogeneous with regards to the other ("southern") good. This asymmetry captures in a stylized fashion the consensus among northern consumers on the labor conditions prevailing in the North and their ambivalence concerning labor practices in the South. A greater consumer's social consciousness can be seen as a punishment (boycott) for the southern socially unsound goods or a reward (buycott) for more virtuous practices in the North. We show that an activism through a buycott strategy or a boycott strategy leads to opposite effects on prices, wages and on the scope of quality differenciation, a buycott being better than a boycott for southern wage, southern quality and southern welfare.
    Keywords: Activism,Boycott,Buycott,Union duopoly,North-South trade,Social conscious- ness,Wage bargaining,Quality,Welfare
    Date: 2019–12
  38. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Takao Ohkawa (Faculty of Economics,Ritsumeikan University); Makoto Okamura (Faculty of Economics,Gakushuin University); Ryoma Kitamura (Faculty of Economics,Otemon Gakuin University)
    Abstract: This paper investigates exchange rate volatility in an international oligopolistic market in a foreign country that accepts affiliate firms through foreign direct investment. The affiliate firms must procure intermediate products from their overseas parent firms. We derive a Cournot equilibrium of a market in which affiliate firms compete with local firms under foreign exchange rate uncertainty. In equilibrium, we show that affiliates aggressively expand output and the ex-post expected profits and ex-ante certainty equivalence of the affiliates’ profits increase / decrease with a rise in exchange rate risk when the relative risk aversion coefficient is small / large.
    Keywords: risk aversion, exchange rate volatility, short-run equilibria, and international oligopoly
    JEL: G32 L13 L12
    Date: 2020–05
  39. By: Afees A. Salisu (Department for Management of Science and Technology Development, Ton Duc Thang University, Ho Chi Minh City, Vietnam; Faculty of Business Administration, Ton Duc Thang University, Ho Chi Minh City, Vietnam); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Elie Bouri (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon)
    Abstract: In this study, we examine the role of global economic conditions in forecasting gold market volatility using alternative measures. Based on the available data frequency for the relevant series, we adopt the GARCH-MIDAS approach which allows for mixed data frequencies. We find that global economic conditions contribute significantly to gold market volatility albeit with mixed outcomes. While the results lend support to the safe-haven properties of the gold market, the outcome is influenced by the choice of measure of global economic conditions. For completeness, we extend the analyses to other precious metals such as silver, platinum, palladium, and rhodium and find that global economic conditions forecast the volatility of gold returns better than other precious metals. Our results are robust to multiple forecast horizons and offer useful insights into plausible investment choices in the precious metals market.
    Keywords: Precious Metals Volatility, Global Economic Conditions, Mixed-Frequency
    JEL: C32 C53 E32 Q02
    Date: 2020–05
  40. By: Richard Adu-Gyamfi (Geneva, Switzerland); Simplice A. Asongu (Yaoundé, Cameroon); Tinaye S. Mmusi (Gaborone, Botswana); Herbert Wamalwa (Nairobi, Kenya); Madei Mangori (Gaborone, Botswana)
    Abstract: The objective of this research is to assess the extent to which export processing zones in Botswana, Kenya, Tanzania, and Zimbabwe integrate the Sustainable Development Goals in their implementation and operations. We focused on four Sustainable Development Goals—gender equality, decent work, industry, and climate action. We interviewed four zone authorities, one in each country. A total of 12 firms in the agro-processing, textiles and garments, construction, and real estate sectors were also interviewed. All four zone authorities demonstrate a measure of environmental inclusiveness in their zone programmes. We found that firms in Kenya and Zimbabwe have a higher number of male than female employees, while zones in Tanzania employ more women. We propose that to promote sustainable development in these zones, policy action should concentrate on attracting firms that (are willing and able to) align with the particular Sustainable Development Goal that zone programmes are intended to achieve.
    Keywords: export processing zones, sustainable development, Botswana, Kenya, Southern Africa, Tanzania, Zimbabwe
    JEL: O25 O55 O57 Q01
    Date: 2020–05
  41. By: Federico Maria Ferrara; Jörg Haas; Andrew Peterson (Georgia Institute of Technology [Atlanta]); Thomas Sattler (Research Unit Ecosystem Boundaries - WSL)
    Abstract: The economic imbalances that characterize the world economy have unequally distributed costs and benefits. This raises the question how countries could run long-term external surpluses and deficits without significant opposition against the policies that generate them. We show that economic ideas, and their emphasis in the public discourse , help to secure mass political support for these policies and the resulting economic outcomes. First, a content analysis of 32,000 newspaper articles finds that the dominant interpretations of economic outcomes in Australia and Germany concur with very distinct perspectives: external surpluses are seen as evidence of competitiveness in Germany, while external deficits are interpreted as evidence of attractiveness for investments in Australia. Second, survey experiments in both countries suggest that exposure to these diverging interpretations has a causal effect on citizens' support for their country's economic strategy. Economic ideas, thus, are crucial to provide the societal foundation of national growth strategies.
    Keywords: survey experiments,text analysis,trade,capital flows,ideas,public opinion
    Date: 2020–05–11

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