nep-int New Economics Papers
on International Trade
Issue of 2021‒05‒03
25 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Towards An Environmental Goods Agreement STyle (EGAST) agenda to improve the regime complex for Climate Change By Jaime de Melo; Jean-Marc Solleder
  2. The Smoot-Hawley Trade War By Mitchener, Kris James; Wandschneider, Kirsten; O’Rourke, Kevin Hjortshøj
  3. EU Trade Agreements and Non-Trade Policy Objectives By Alessandro Ferrari; Matteo Fiorini; Joseph Francois, Bernard Hoekman, Lisa Maria Lechner, Miriam Manchin, Filippo Santi
  4. Perspectives on Trade and Structural Transformation By George A. Alessandria; Robert C. Johnson; Kei-Mu Yi
  5. Borders within Europe By Santamaría, Marta; Ventura, Jaume; YeÅŸilbayraktar, UÄŸur
  6. The Double Dividend of a Joint Tariff and VAT Reform: Evidence from Iran By Yousefi, Kowsar; Vesal, Mohammad
  7. Import competition, regional divergence, and the rise of the skilled city By Javier Quintana
  8. Export and firms' performance in North Macedonia: self selection or learning by doing? By Biljana Jovanovic
  9. Impact of oil prices on remittances to Pakistan from GCC countries: evidence from panel asymmetric analysis By Abbas, Shujaat
  10. West Africa’s dependency on imports of dairy products By Vincent Chatellier
  11. Quality Misallocation, Trade, and Regulations By Luca Macedoni; Ariel Weinberger
  12. The Impact of Oil Prices on World Trade By Giulia Brancaccio; Myrto Kalouptsidi; Theodore Papageorgiou
  13. Variation in labour skills and offshoring across time zones By Prasad, Alaka Shree; Mandal, Biswajit
  14. The Long Shadow of Infrastructure Development: Long Run Effects of Railway Construction in Colonial India By Pushkar Maitra; William Yu
  15. How has COVID-19 affected the intention to migrate via the backway to Europe and to a neighboring African country? Survey evidence and a salience experiment in The Gambia By Tijan L. Bah; Catia Batista; Flore Gubert; David McKenzie
  16. Determinants of Foreign Direct Investment in Europe: Bayesian Model Averaging in the Presence of Weak Exogeneity By Chupryhin, Radzivon
  17. Technology, Market Structure and the Gains from Trade By Giammario Impullitti; Omar Licandro; Pontus Rendahl
  18. Risky Gravity By Luciana Juvenal; Paulo Santos Monteiro
  19. Understanding the Origins of Populist Political Parties and the Role of External Shocks By Eugenio Levi; Isabelle Sin; Steven Stillman
  20. Over Land and Over Sea: Domestic Trade Frictions in the Philippines By Go, Eugenia
  21. Telecommunication Infrastructure Development and FDI into Asian Developing Nations By Shah, Mumtaz Hussain; Khan, Faisal
  22. Information Frictions, Investment Promotion, and Multinational Production: Firm-Level Evidence By Jerónimo Carballo; Ignacio Marra de Artiñano; Christian Volpe Martincus
  23. Trade and Informality in the Presence of Labor Market Frictions and Regulations By Rafael Dix-Carneiro; Pinelopi Koujianou Goldberg; Costas Meghir; Gabriel Ulyssea
  24. The New Ricardian Specific Factor Model By Sugata Marjit; Gouranga Gopal Das
  25. Impact of the coronavirus pandemic on the international supply chain of Swedish firms and measures to reduce vulnerability. A survey in collaboration with the Confederation of Swedish Enterprise By Håkan Nordström; Agnes Elfving; Elsa Nilsson

  1. By: Jaime de Melo (University of Geneva [Switzerland], FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Jean-Marc Solleder (University of Geneva [Switzerland])
    Abstract: Ever since the creation of the WTO, attempts at bringing together the trade and climate regime have failed. This paper reviews attempts at reducing tariffs on products classified as Environmental Goods (EGs), causes of failure in past attempts, and suggests requirements for a meaningful agenda in future attempts. The start is the failure at the negotiations on the Environmental Goods Agreement (EGA) negotiations started in 2014 and abandoned in 2016. Discussion on prospects is around elements that would enter 'EGA-STyle' (EGAST) negotiations among a small group of countries. The paper starts with new descriptive data on the inclusion of provisions in Regional Trade Agreements (RTAs) across the world encouraging trade in EGs. However, the presence of these provisions in RTAs has not been reflected in increased bilateral trade in EGs among RTA members, confirming the relevance of continuing to revive momentum to reduce barriers to trade in EGs. Discussion of reasons for failure at the EGA (and earlier at the Doha Round) follow. An EGAST agenda should go beyond the elimination of ‘nuisance tariffs' to include high energy-efficiency EGs and high-tariff products. The EG list should also include Environmentally Preferable Products. As to the difficult-to-detect Non-tariff Barriers (e.g. non-tariff measures), among which some are protectionist in intent, they should be included in the agenda up for mutual recognition. The paper concludes that EGAST negotiations to reduce barriers to trade in EGs would still be a promising avenue for rapprochement between the trade and climate regimes.
    Keywords: Environmental Goods,WTO,Climate Change
    Date: 2021–04–07
  2. By: Mitchener, Kris James (Santa Clara University, CAGE, CEPR, CES-ifo & NBER); Wandschneider, Kirsten (University of Vienna & CEPR); O’Rourke, Kevin Hjortshøj (NYU-Abu Dhabi, CEPR, NBER & CAGE)
    Abstract: We document the outbreak of a trade war after the U.S. adopted the Smoot-Hawley tariff in June 1930. U.S. trade partners initially protested the possible implementation of the sweeping tariff legislation, with many eventually choosing to retaliate by increasing their tariffs on imports from the United States. Using a new quarterly dataset on bilateral trade for 99 countries during the interwar period, we show that U.S. exports to countries that protested fell by between 15 and 22 percent, while U.S. exports to retaliators fell by 28-33 percent. Furthermore, using a second new dataset on U.S. exports at the product-level, we find that the most important U.S. exports to retaliating markets were particularly affected, suggesting a possible mechanism whereby the U.S. was targeted despite countries’ MFN obligations. The retaliators’ welfare gains from trade fell by roughly 8-17%.
    Keywords: Trade wars, gravity model, Smoot-Hawley, Great Depression, trade policy JEL Classification: F13, F14, N70
    Date: 2021
  3. By: Alessandro Ferrari; Matteo Fiorini; Joseph Francois, Bernard Hoekman, Lisa Maria Lechner, Miriam Manchin, Filippo Santi
    Abstract: The EU’s common commercial policy is used as an instrument to realize its values in EU trading partners, reflected in the inclusion of sustainable trade and development chapters in EU preferential trade agreements (PTAs). In this paper we ask if including non-trade provisions (NTPs) in EU PTAs has a systematic positive effect on non-trade outcomes in partner countries. We analyze the relationship between bilateral trade flows, the coverage of NTPs in EU PTAs and the performance of EU partner countries on several non-trade outcome variables using synthetic control methods. We find no robust evidence of a causal effect of including NTPs in EU PTAs on indicators of non-trade outcomes.
    Keywords: Non-trade policy objectives, EU trade agreements, trade policy, non-trade provisions
    Date: 2021–04
  4. By: George A. Alessandria; Robert C. Johnson; Kei-Mu Yi
    Abstract: This paper surveys macroeconomic and microeconomic perspectives on the role of international trade in structural transformation. We start by describing canonical frameworks that have been used to quantify how trade influences sectoral shares of employment and value added. We then pivot to survey micro-empirical evidence on the impact of changes in trade on the allocation of labor across sectors and productivity at the firm level. In this, we put special emphasis on the role of participation in global value chains and inward foreign direct investment in mediating these effects. Next, we evaluate evidence on the barriers to trade faced by low-income countries, with special attention to recent work that measures these costs taking firm dynamics into account. We conclude by discussing how these micro-perspectives can be integrated into macro-models to advance our understanding of structural change.
    JEL: F1 F43 O11 O4
    Date: 2021–04
  5. By: Santamaría, Marta (University of Warwick and CAGE); Ventura, Jaume (CREI, Universitat Pompeu Fabra and Barcelona GSE); YeÅŸilbayraktar, UÄŸur (Universitat Pompeu Fabra and Barcelona GSE)
    Abstract: Are country borders still an impediment to trade flows within Europe? Using a microlevel survey with 3 million annual shipments of goods, we construct a matrix of bilateral trade for 269 European regions. Take two similar region pairs, one containing regions in different countries and the other containing regions in the same country. The market share of the origin region in the destination region for the international pair is 17.5 percent that of the intranational pair. Across industries, this estimate ranges from 12.3 to 38.9 percent. For post-1910 borders, this estimate is 28.8 percent. The implication is clear: Europe is far from having a single market.
    Keywords: Border effect, European integration, regional trade. JEL Classification: D71, F15, F55, H77, O57
    Date: 2021
  6. By: Yousefi, Kowsar; Vesal, Mohammad
    Abstract: Abstract A rich theoretical literature discusses whether replacing tariffs with value added tax (VAT) improves efficiency. We provide empirical evidence on a novel complementarity between VAT and trade taxes. Downstream domestic firms require VAT receipts from importers to claim purchases VAT increasing incentives for honest reporting of imports. We use the trade gap, the difference between mirror and domestic trade reports in Iran at 6-digit HS disaggregation, to measure this complementarity. Iran introduced VAT in 2008 and increased its rate from 3 to 9 percent since then. Difference-in-differences estimations show that a 1 percentage point increase in the VAT rate reduces the trade gap by 6.7 percent. Consistent with the compliance mechanisms of VAT, we observe a smaller effect for the consumer products that have a shorter value chain. Our results suggest that replacing tariffs with VAT results in a double dividend. Tax revenue could increase due to better tariff compliance and a broader VAT base.
    Keywords: Value Added Tax; Trade Liberalization; Tariffs; Chains Effect; Tax Compliance;
    JEL: F13 F14 H25
    Date: 2021–04–16
  7. By: Javier Quintana (Banco de España)
    Abstract: This paper analyzes the contribution of import competition to the regional divergence among US metropolitan areas over recent decades. I document that the sharp rise in imports of Chinese manufacturing goods had a significant effect on the spatial skill polarization and the divergence of college wage premium among local labor markets. The effects of the China trade shock were systematically different depending on the skill intensity of local services. Among regions with skill-intensive services, a higher exposure to import competition in manufacturing increased the number and wages of college-educated workers. The negative effects of the China shock concentrated in exposed regions with a low density of college-educated workers. The heterogeneous effects of import competition explain one third of the spatial skill polarization and one fourth of the divergence in college wage premium. I show that the contribution of the trade shock operates through the reallocation of workers across sectors and regions. Using a novel measure of “labor market exposure to the China shock”, I document that service industries expand when local manufacturers face import competition. High human capital regions exposed to the China shock undergo a faster transition from manufacturing to skill-intensive service industries and attract college-educated workers from other locations.
    Keywords: international trade, import competition, regional inequality, skill sorting, factor mobility
    JEL: F14 F16 F66 I24 J24 J61 R12
    Date: 2021–04
  8. By: Biljana Jovanovic (National Bank of the Republic of North Macedonia)
    Abstract: Export is an important contributor to growth with numerous direct and indirect macroeconomic benefits. Moreover, firms engaged in exporting activity tend to have superior characteristics compared to their non-exporting peers. The paper is focused on identifying reasons behind this superiority of exporters by testing two hypothesis – self-selection and learning by doing hypothesis. The analysis is done on a sample of over 1,900 manufacturing firms annually, for the period 2013-2017. In line with previous empirical research, we found evidence in favor of the self-selection hypothesis. This means that more successful and more productive firms become exporters as a result of their performance i.e. they self-select themselves in the international market. In addition, our results suggest that, complementary to the self-selection process, there are some evidence of the validity of learning by doing hypothesis.
    Keywords: self selection, learning by doing, export, matching
    JEL: D24 D22 F14
    Date: 2020
  9. By: Abbas, Shujaat
    Abstract: International migration and remittances from oil-exporting Gulf countries are important sources of employment, income, and foreign exchange for Pakistan. This study investigates the asymmetric impact of oil prices on remittances to Pakistan from GCC countries, over the period 1980 to 2018, by employing the recently advanced non-linear panel Pooled Mean Group (PMG) model. The findings show that oil prices and remittance are asymmetrically associated. The increasing oil prices have a significant positive effect only in the long run; whereas, reducing oil prices reveal a significant negative effect only in the short run. Findings of other explanatory variables show that the economic condition in host countries, exchange rate, and trade relations have positive effects only in the long run; whereas the economic condition in the home country has significant negative effects in the long run and positive effect in the short run. This study urges oil exports to stabilize oil supply and prices, and Pakistan to enhance trade relations, exchange rate adjustments, and financial development
    Keywords: Energy prices, remittances flow, asymmetric analysis, panel data, Pakistan
    JEL: F22 F24 Q4
    Date: 2020
  10. By: Vincent Chatellier (SMART - Structures et Marché Agricoles, Ressources et Territoires - AGROCAMPUS OUEST - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: The world dairy sector is undergoing sustained developments due to the increasing dairy needs of a growing population and a gradual change in diets. This article evaluates the position of West African countries amid the "dairy planet". The analysis uses FAO statistical data over a long period (1961 to 2017) and customs statistics from 2000 to 2018 for global data ("BACI" database) and from 2000 to 2019 for European data ("COMEXT" database). Although per capita consumption of dairy products per year is still low in many West African countries compared with industrialised countries, overall requirements for dairy products are increasing rapidly as a result of population growth. Due to numerous difficulties (climate, soil quality, low animal productivity, lack of investment... ), the development of milk production in West Africa (5.8 billion litres in 2017 for sixteen countries, the equivalent to the production of Brittany) is not sufficient to meet local needs. A little over two thirds of the dairy products imported into this zone come from the EU, whose exports have increased sharply over the past ten years (end of milk quotas). Around 40% of these imports are skimmed milk and vegetable fat powder blends (based on palm oil), a product that benefits from a competitive price and which is only very slightly taxed on entry into West African countries.
    Abstract: Le secteur laitier mondial connaît un développement soutenu en raison de l'augmentation des besoins en produits laitiers d'une population en croissance et d'un changement progressif des régimes alimentaires. Cet article s'intéresse à la place des pays de l'Afrique de l'Ouest dans la « planète laitière ». L'analyse mobilise pour ce faire, d'une part, les données statistiques de la FAO sur une longue période (1961 à 2017) et, d'autre part, les statistiques des douanes de 2000 à 2018 pour les données mondiales (base de données « BACI ») et de 2000 à 2019 pour les données européennes (base de données « COMEXT »). Si la consommation de produits laitiers par habitant et par an est encore faible dans de nombreux pays de l'Afrique de l'Ouest, comparativement aux pays industrialisés, les besoins globaux en produits laitiers augmentent rapidement sous l'effet de la croissance démographique. En raison de nombreuses difficultés (climat, qualité des sols, faible productivité des animaux, manque d'investissement...), le développement de la production laitière en Afrique de l'Ouest (5,8 milliards de litres en 2017 pour seize pays, soit l'équivalent de la production de la Bretagne) n'est pas suffisant pour faire face aux besoins locaux. Les importations de cette zone en produits laitiers se font pour un peu plus des deux tiers en provenance de l'UE, dont les exportations ont fortement augmenté depuis une dizaine d'années (fin des quotas de production). Ces importations concernent à 40 % des mélanges de lait écrémé et de matière grasse végétale en poudre (à base d'huile de palme), un produit qui bénéficie d'un prix compétitif et qui n'est que très faiblement taxé à l'entrée dans les pays de l'Afrique de l'Ouest.
    Keywords: Competitiveness,European Union,International trade,West Africa,Vegetable fat powder,Milk powder,Milk production,Afrique de l'Ouest,Matière grasse végétale en poudre,Poudre de lait,Production laitière,Commerce international,Union Européenne,Compétitivité
    Date: 2020–10
  11. By: Luca Macedoni; Ariel Weinberger
    Abstract: Recent trade agreements have shifted their focus to non-tariff barriers such as regulations and product standards, which have been traditionally treated as pure domestic policies. The imposition of such standards reallocates production from small to large, high quality firms. We model regulations as a fixed cost that any firm selling to an economy must pay, consistent with stylized facts that we present. The fixed cost improves allocative efficiency, by reallocating production towards high-quality firms, who under-produce in the market allocation. Furthermore, the fixed cost generates a positive externality on the rest of the world as it induces entry of high-quality firms, but unilateral regulation lowers the terms of trade of the imposing country. The result justifies international cooperation based on the fact that such cooperation can improve welfare, rather than preventing negative consequences of tariff wars. We estimate our model and apply its gravity formulation to quantify the welfare consequences of imposing the optimal regulation, the extent of the positive externalities across countries, and the effects of cooperation.
    Keywords: allocative efficiency, regulations, quality standards, variable markups, trade policy
    JEL: F12 F13 L11
    Date: 2021
  12. By: Giulia Brancaccio (Cornell University); Myrto Kalouptsidi (Harvard University); Theodore Papageorgiou (Boston College)
    Abstract: In this paper we investigate the importance of fuel costs in shaping world trade. We use AIS data on ship locations and transaction-level shipping prices, along with a dynamic model describing the world shipping industry, to measure the elasticity of trade with respect to ship fuel costs. We find that the average estimated elasticity is 0.35, but ranges from 0.1 to about 1.2 depending on the level of the fuel cost. The pass-through of fuel costs to transport costs is low, at 0.17. Strikingly, the trade elasticity features a pronounced asymmetry in low vs. high oil prices. As fuel costs decline, the elasticity plateaus and further declines have little impact on trade. This “flattening out” of the elasticity is attributed to the equilibrium of the transportation sector and in particular the changes in the relative bargaining positions of ships and exporters. Finally, we use the estimated elasticity to assess the importance of ship design on trade flows: if the large fuel efficiency gains achieved in the 1980s had not been realized, trade would be 12% lower today.
    Keywords: fuel costs, shipping, world trade, trade elasticity, oil prices, fuel efficiency, fuel cost pass-through
    JEL: F1 F64 L90 R4
    Date: 2021–04–24
  13. By: Prasad, Alaka Shree; Mandal, Biswajit
    Abstract: The paper extends Dei (2010) to check the role of time zone difference on offshoring of service tasks when the quality of workers varies between the partner countries. We frame a model where partner countries are located in non-overlapping time zones, and the skill level of the partner country workers is lower than that of the domestic workers. In our model, service production is divided into two sequential stages, and output is a supermodular function of the skill of workers and time. The problem of the service producers is to choose between domestic production and offshoring. Domestic production employs high-quality skilled labours but the time management is inefficient. On the other hand, offshoring to a non-overlapping time zone helps a firm to work round the clock, but the low quality of skilled labour lowers the output, though they cost less. In such a framework, we check under what conditions offshoring is beneficial. The analysis provides a condition where firms decide to offshore through a tradeoff between time and skill. We observe that the lesser of 24 hours domestic production use, the lower will be the threshold of acceptable skill level. Results show that offshoring to a different time zone is beneficial even when the complexity of stages of production vary. However, it is observed that only the relatively less-critical task is offshored. We further observe that availability of domestic lowquality labour does not benefit the firm, but foreign low-quality labour can be beneficially utilized through time-zone exploitation.
    Keywords: Offshoring,Skill,Time Zones,Virtual Trade,Services
    JEL: F1 F23 J24 L23 L86
    Date: 2021
  14. By: Pushkar Maitra (Monash University, Department of Economics); William Yu (Monash University)
    Abstract: This paper examines the long-term impacts of infrastructural investment. It considers the case of British investment in railway infrastructure in colonial India. Railways had an immediate impact on trade and development in the predominantly agricultural India. In this paper, we show that the positive effects of railways have persisted over more than a century. Districts of the Indian sub-continent that were connected to railways earlier continue to have higher levels of economic prosperity and lower rural poverty rates a century later. Men and women residing districts connected earlier are less likely to be uneducated or malnourished. Districts further away from connected districts are worse o in terms of levels of economic development in 2013. The corresponding IV estimates are larger in magnitude than the OLS estimates indicating that the OLS estimates provide a lower bound to the effect of exposure to railways on long run prosperity. The persistent effects appear to be driven by agglomeration due to early exposure to trade and globalization as a result of connectedness.
    Keywords: Infrastructure, Railways, Long Run Prosperity, Colonial India
    JEL: O11 N75 O18
    Date: 2021–04
  15. By: Tijan L. Bah (Navarra Center for International Development, University of Navarra and Novafrica, Nova SBE); Catia Batista (Nova School of Business and Economics); Flore Gubert (IRD, UMR LEDa-DIAL, PSL, U. Paris-Dauphine, CNRS, and Paris School of Economics); David McKenzie (Development Research Group, the World Bank)
    Abstract: The COVID-19 pandemic has resulted in border closures in many countries and a sharp reduction in overall international mobility. However, this disruption of legal pathways to migration has raised concerns that potential migrants may turn to irregular migration routes as a substitute. We examine how the pandemic has changed intentions to migrate from The Gambia, the country with the highest pre-pandemic per-capita irregular migration rates in Africa. We use a large-scale panel survey conducted in 2019 and 2020 to compare changes in intentions to migrate to Europe and to neighboring Senegal. We find the pandemic has reduced the intention to migrate to both destinations, with approximately one-third of young males expressing less intention to migrate. The largest reductions in migration intentions are for individuals who were unsure of their intent pre-pandemic, and for poorer individuals who are no longer able to afford the costs of migrating at a time when these costs have increased and their remittance income has fallen. We also introduce the methodology of priming experiments to the study of migration intentions, by randomly varying the salience of the COVID-19 pandemic before eliciting intentions to migrate. We find no impact of this added salience, which appears to be because knowledge of the virus, while imperfect, was already enough to inform migration decisions. Nevertheless, despite these decreases in intentions, the overall desire to migrate the backway to Europe remains high, highlighting the need for legal migration pathways to support migrants and divert them from the risks of backway migration.
    Keywords: Migration intentions, COVID-19 Pandemic, Priming and Salience Experiments, Backway migration, The Gambia
    JEL: F22 O15 J61 C93
    Date: 2021–04
  16. By: Chupryhin, Radzivon
    Abstract: This paper derives the robust determinants of Foreign Direct Investment (FDI) in Europe under model uncertainty and weak exogeneity issues. For this reason, Bayesian Averaging of Limited Information Maximum Likelihood Estimates (BALIMLE) approach was utilized. The chosen methodology allows for the estimation of a dynamic panel model with fixed effects. Also, the jointness measures were computed. The considered sample includes bilateral FDI flows between 36 European countries over the 2004 – 2017 period. The empirical evidence shows the importance of the endowment theory and the significance of output per worker and labor force variables in explaining the FDI flows. A market size theory was proposed to be augmented with a relative growth hypothesis. The calculated jointness measures indicated the complementary nature of considered regressors and theories.
    Keywords: Bayesian Model Averaging, FDI, Europe, model uncertainty, weakly exogenous regressors
    JEL: F2 F21 F23 F41 F62 F66 I26 O3 O33
    Date: 2021–04–15
  17. By: Giammario Impullitti; Omar Licandro; Pontus Rendahl
    Abstract: We study the gains from trade in a model with oligopolistic competition, heterogeneous firms and innovation, and provide a formula to decompose the mechanism. The new insight we provide is that market concentration can be a welfare-relevant feature of market power above and beyond markup dispersion. Trade liberalisation increases foreign competition and reduces the number of active firms in the market, thereby increasing concentration. A more concentrated economy is more efficient due to increasing returns in production. Moreover, higher concentration produces a scale effect on firms’ incentives to innovate, which increases welfare via productivity improvements. In the calibrated version of the model we show that a trade-induced increase in concentration contributes substantially to the gains from trade, mostly via its stimulating effect on innovation. Sizeable gains also come from the reduction of the inefficiency produced by trade in identical goods; i.e. through a reduction in reciprocal dumping. Changes in markup dispersion, in contrast, have only negligible effects.
    Keywords: gains from trade, heterogeneous firms, oligopoly, innovation, endogenous markups, market concentration
    JEL: F12 F13 O31 O41
    Date: 2021
  18. By: Luciana Juvenal; Paulo Santos Monteiro
    Abstract: We consider the canonical trade model with heterogeneous firms, love for variety and trade costs, and integrate it in the consumption CAPM model. This yields a structural gravity equation that includes an additional factor related to risk premia. Empirical evidence based on firm-level data confirms the importance of cross-sectional heterogeneity in risk and time-varying risk premia to shape bilateral trade flows. The structural gravity model augmented to account for fluctuations in risk premia offers a compelling explanation for trade collapses during abrupt economic downturns.
    Keywords: Risk premia, Gravity equation, Trade collapse
    JEL: F12 F41 F44
    Date: 2021–04
  19. By: Eugenio Levi (Masaryk University); Isabelle Sin (Motu Economic and Public Policy Research); Steven Stillman (Free University of Bozen-Bolzano, CESifo, IZA)
    Abstract: We use electoral survey data to examine the impact that two large external shocks had on the development of New Zealand First (NZF), one of the oldest populist parties in the OECD. We find that structural reforms, which led to large negative impacts on particular locations, and immigration reforms, which led to large spatially concentrated increases in skilled migration, both increased voting for NZF in its first years of existence. These shocks led to changes in political attitudes and policy preferences and had persistent effects on voting for NZF even twenty years later. Overall, they play an important role in explaining the rise of populism in NZ. Understanding how these shocks led to the development of NZF is particularly relevant for thinking about how populism has been extending its reach in the 2010s.
    Keywords: populism; political parties; trade; immigration; shocks
    JEL: D72 P16 H40
    Date: 2021–04
  20. By: Go, Eugenia (Asian Development Bank)
    Abstract: We create two novel datasets—the starting dates of Roll-On Roll-Off Terminal System (RRTS) service by route, and interprovincial land trade—to evaluate the effects of the RRTS on agricultural trade costs within the Philippines as measured by border effects. We find province border effects to be substantial in the Philippines, with a typical province trading 28–53 times more with itself than with other provinces. The RRTS reduced this by a factor of 0.65. This is confirmed by increased trade flows, with RRTS province pairs trading 36%–42% more on average compared to similar unconnected province pairs. However, the border effect reduction is unevenly distributed and tends to be limited to provinces near the biggest demand center.
    Keywords: border effects; domestic trade; trade costs
    JEL: F14 O18 Q10
    Date: 2020–02–28
  21. By: Shah, Mumtaz Hussain; Khan, Faisal
    Abstract: This study strives to evaluate the effects of infrastructure availability and development on foreign direct investment (FDI) in host developing nations. Employing fixed effects panel estimation technique, panel data for 23 Asian developing countries, from 1990-2009 is used with heteroscedasticity corrected standard errors. The results reveal a strong favourable impact of telecom infrastructure (measured by mobile subscriptions) in drawing inward FDI. Therefore, it is concluded that a country with improved infrastructure in general and telecom infrastructure in particular is likely to pull in more FDI. Other variables such as market size, economic development, and currency valuation (measured by exchange rate) appear important in captivating multinational investors, as they exhibit significant coefficients. On the contrary, high-inflation significantly deters inward FDI.
    Keywords: FDI, Telecommunication Infrastructure, Panel data
    JEL: C23 F21 F23
    Date: 2019–06
  22. By: Jerónimo Carballo; Ignacio Marra de Artiñano; Christian Volpe Martincus
    Abstract: While countries make use of a wide range of policies to attract multinational firms, identifying the effect of such policies is difficult. Combining firm-level data on both the location of these firms’ foreign affiliates and detailed service-specific information from Costa Rica’s investment promotion agency (IPA) over time, we find that IPA support significantly increases the probability that a multinational firm establishes its first affiliate in the country, but has generally no impact on the expansion of its presence thereafter. We then show that this effect is primarily driven by the resolution of information asymmetries. It is stronger for IPA information services and on multinational firms from countries and in sectors facing more severe information frictions.
    Keywords: information frictions, investment promotion, multinational production
    JEL: F23 F13 F14 L23 L25 L52 O25
    Date: 2021
  23. By: Rafael Dix-Carneiro (Duke University and NBER); Pinelopi Koujianou Goldberg (Yale University); Costas Meghir (Yale University); Gabriel Ulyssea (University College of London)
    Abstract: We build an equilibrium model of a small open economy with labor market frictions and imperfectly enforced regulations. Heterogeneous firms sort into the formal or informal sector. We estimate the model using data from Brazil, and use counterfactual simulations to understand how trade affects economic outcomes in the presence of informality. We show the following: 1) Trade openness unambiguously decreases informality in the tradable sector but has ambiguous effects on aggregate informality. 2) The productivity gains from trade are understated when the informal sector is omitted. 3) Trade openness results in large welfare gains even when informality is repressed. 4) Repressing informality increases productivity but at the expense of employment and welfare. 5) The effects of trade on wage inequality are reversed when the informal sector is incorporated in the analysis. 6) The informal sector works as an “unemployment buffer” but not a “welfare buffer” in the event of negative economic shocks.
    Keywords: Labor market effects of trade, Informality, Unemployment
    JEL: F14 F16 J46 O17
    Date: 2021–04
  24. By: Sugata Marjit; Gouranga Gopal Das
    Abstract: This paper explores the implications on trade and wage inequality of introducing financial capital or credit in the standard Ricardian model of production, where a given amount of start-up credit is used to employ sector specific skilled and unskilled workers following the Wage Fund approach of classical economists. Thus, we have the Specific Factor (SF) structure of Jones (1971) in a new Ricardian model (NRM) with credit and two types of labour. With an entirely different mechanism from the conventional Neo-Classical structure, distributional consequences of changes in endowments, commodity prices, and financial capital are established. Comparisons with Jones (1971) show that unlike SF model, credit expansion affects wages and nominal costs without affecting trade patterns, while rise in the relative price of the skill-intensive good causes skilled wage to hike less than proportionately, and may cause return to capital to inflate more than the wages We extend the basic model to analyse immigration, unemployment and imperfect credit market.
    Keywords: wage-fund, specific factor, Ricardo, inequality, credit, general equilibrium
    JEL: B12 B13 B17 F11 F63 F65 F16 O12
    Date: 2021
  25. By: Håkan Nordström; Agnes Elfving; Elsa Nilsson
    Abstract: During the first stage of the coronavirus pandemic in 2020, many companies faced disruptions in their international supply chains. This paper is based on a survey of 3441 Swedish companies. The findings reveal that 69.5% of the companies that use foreign suppliers experienced supply disruptions during the pandemic; in more than two-thirds of these cases problems persisted as of the time of the survey (November 2020). Planned measures to reduce vulnerability to future disruptions include increased inventories, spreading purchases over more suppliers and countries, and increasing domestic or regional sourcing. Only a small share of firms planned to re-shore production. Companies have heterogeneous views on desired state action to reduce vulnerability to future trade disruptions, ranging from calls to keep markets open, to doing more at EU level to coordinate on crisis measures, strengthening crisis preparedness to support for domestic producers through procurement and finance.
    Keywords: Supply chains, global value chains, COVID-19, resilience, reshoring, public policy
    Date: 2021–03

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