nep-int New Economics Papers
on International Trade
Issue of 2023‒09‒04
twenty papers chosen by
Luca Salvatici, Università degli studi Roma Tre

  1. Service Trade, Regional Specialization, and Welfare By Yuancheng Han; Jorge Miranda-Pinto; Satoshi Tanaka
  2. Effects of the dynamic of regional integration on West Africa's trade By Palakiyèm Kpemoua
  3. Measuring Value Added in Gross Trade: Endogenous Approach of Vertical Differentiation By Dutta, Sourish
  4. Stopping Firestone and starting a citizen ‘revolution from below’: reflections on the enduring exploitation of Liberian land and labour By Pailey, Robtel Neajai
  5. Analyzing the Impact of Foreign Capital Inflows on the Current Account Balance in Developing Economies: A Panel Data Approach By Ali, Amjad; Audi, Marc
  6. An enhanced methodology to monitor the EU’s strategic dependencies and vulnerabilities By Arjona, Román; Connell, William; Herghelegiu, Cristina
  7. The Political Economy of Assisted Immigration: Australia 1860-1913 By Hatton, Timothy J.
  8. Mergers, Foreign Competition, and Jobs: Evidence from the U.S. Appliance Industry By Felix Montag
  9. Tariffs and Innovation in a Schumpeterian Economy with North-South Technology Transfer By Ho, Florence Ut Meng
  10. How do South-South and North-South FDI affect energy intensity in developing countries? By Herzer, Dierk; Schmelmer, Niklas
  11. Diversify or not? The link between global sourcing of ICT goods and firm performance By Schiersch, Alexander; Bertschek, Irene; Niebel, Thomas
  12. Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from Corporate Tax Notches By Jaqueline Hansen; Valeria Merlo; Georg Wamser
  13. Does Trade Liberalization Foster Intimate Partner Violence? By Alberto Chong; Daniel Velasquez
  14. Ethical and legal implications of FDI in or near cultural heritage sites By Mak, Charles Ho Wang
  15. Exposure to the One-Child Policy and Fertility among Chinese Immigrants to the US By Lin, Siyuan; Argys, Laura M.; Averett, Susan L.
  16. The dimensions of negative emotion and attitude change toward foreign countries at crisis events: The case of Japan's mass attitudes toward South Korea and China By Kim, Taehee; Shikano, Susumu
  17. The Belt and Road Initiative: Are China’s Investments Sensitive to the Quality of Governance in a Host Country? By Xinge Ruan; Nader Habibi
  18. Current External Challenges to the Economic Expansion of Emerging Markets By Juan Carlos Moreno-Brid; Lorenzo Nalin; Edgar Perez-Medina
  19. The Network Gravity of Global Banking By Minetti, Raoul; Romanini, Giacomo; Ziv, Oren
  20. Cultural Stereotypes of Multinational Banks By Eichengreen, B.; Saka, O.

  1. By: Yuancheng Han; Jorge Miranda-Pinto; Satoshi Tanaka
    Abstract: How much does trade in services affect regional production specialization and welfare? Using unique Canadian trade data, we document that the size of inter-provincial service trade is comparable to that of good trade, and that net exports of services are highly correlated with the value-added share of tradable services across provinces. With a spatial model featuring domestic and international trade, we quantify the effects of service trade. Our results highlight that domestic service trade significantly promotes regional specialization, with heterogeneous welfare gains that reduce regional disparities. Conversely, international service trade generates more uniform welfare gains across provinces.
    Keywords: service trade, domestic trade, regional specialization, regional disparities, welfare, structural transformation
    JEL: E20 F10 L16
    Date: 2023–08
  2. By: Palakiyèm Kpemoua (Université de Lomé [Togo])
    Abstract: The main purpose of this paper is to examine the effects of the dynamic of regional integration and WTO membership on aggregate bilateral trade of West African countries. Empirical analyses were performed using an augmented structural gravity model on bilateral trade covering the period 1970-2019 and using the PPML estimator with its variants obtained from high-dimensional fixed effects (PPMLHDFE) suggested by Larch et al. (2018). The results show that the dynamic of regional integration in WAEMU significantly increase intra- and extra-bloc trade, whereas in the case of ECOWAS, they imply export trade deversion effects unfavourable to non-member countries. On the other hand, WTO membership diverts intra-bloc trade away from West African countries
    Abstract: L'objectif de cet article est d'examiner les effets de la dynamique de l'intégration régionale et de l'adhésion à l'OMC sur le commerce bilatéral agrégé des pays de l'Afrique de l'Ouest. Les analyses empiriques ont été effectuées à partir d'un modèle de gravité structurelle augmentée sur le commerce bilatéral couvrant la période 1970-2019 et à l'aide de l'estimateur PPML avec ses variantes obtenues à partir des effets fixes de grande dimension (PPMLHDFE) suggérées par Larch et al. (2018). Les résultats obtenus montrent que la dynamique de l'intégration régionale dans l'UEMOA augmente de manière significative le commerce intra-bloc et extrabloc alors que dans le cas de la CEDEAO, ils impliquent des effets de détournement de commerce d'exportation préjudiciables aux pays non membre. Par ailleurs, l'appartenance à l'OMC détourne le commerce intra-bloc des pays de l'Afrique de l'Ouest.
    Keywords: regional integration, intra-regional trade, panel data gravity model, ECOWAS., modèle de gravité en panel, CEDEAO, Intégration régionale, commerce intra-régional
    Date: 2023–08
  3. By: Dutta, Sourish
    Abstract: From the beginning of the 1980s, the first theoretical analysis of intra-industry trade showed that the determinants and consequences of this type of trade are different, depending on whether the traded products differ in quality. When the products are subject to intra-industry trade between two countries with distinct qualities, this trade is vertically differentiated. Otherwise, it is called horizontal differentiation. There is a method for distinguishing intra-industry trade between two countries in vertical differentiation from those in horizontal differentiation. This method compares exports' unit value to imports for each industry's intra-industry trade. It considers the intra-industry trading carried out in this industry as vertical differentiation when the unit value of exports differs significantly from that of imports. This approach has limitations. The discussion below will lead us to think about an alternative method for separating and measuring intra-industry trade into horizontal and vertical differentiation.
    Keywords: Intra-industry Trade, Vertical Intra-industry Trade, Horizontal Intra-industry Trade, Value Added
    JEL: F0 F1
    Date: 2023–07–20
  4. By: Pailey, Robtel Neajai
    Abstract: Attempting to reduce America’s dependence on foreign-sourced rubber, Firestone established in 1926 the world’s largest industrial plantation in Liberia under a controversial 99-year-lease agreement. Nearly a century later, backlash against the exploitative nature of corporate hegemony and economic globalisation crystallised in a transnational campaign, Stop Firestone, and class action suit to hold the multinational accountable. I argue in this article that Liberia’s unequal incorporation into global capitalism has configured and reconfigured the set of relations between government and citizens through parallel, albeit interrelated, processes—the globalisation of capital (via trade and investments) and the globalisation of rights (via universalised notions of citizenship as a human right). While the pursuit of foreign direct investment (FDI) in particular placed the interests of investors like Firestone ‘above’ the state thus undermining government–citizen relations, it simultaneously created a politicised workforce and network of Liberian activists thus strengthening citizen–citizen relations. Based on careful review of concession agreements and court proceedings as well as interviews conducted with government officials, activists and legal advocates based in Liberia and the United States, this article is the first to meld historical and contemporary developments, underscoring the twenty-first century implications of Firestone’s enduring exploitation of Liberian land and labour.
    Keywords: capitalism; citizenship; Firestone; globalisation; labour rights; Liberia; T&F deal
    JEL: R14 J01
    Date: 2023–08–04
  5. By: Ali, Amjad; Audi, Marc
    Abstract: This research has explored the effects of foreign capital inflows on the current account deficit in developing countries from 1995 to 2020. The study considers various factors such as import demand, export demand, foreign direct investment, foreign debt, economic growth, foreign remittances, and foreign reserves as independent variables. The analysis utilizes the panel autoregressive distributed lag approach to examine both the long-run and short-run relationships between the dependent and independent variables. Moreover, the study employs the Panel Granger causality test to evaluate the causal connections among the selected variables. The results indicate that import demand, foreign debt, and remittance inflows positively affect the current account deficit in developing countries. Conversely, export demand, foreign direct investment, economic growth, and foreign reserves have a negative impact on the current account deficit. Consequently, it is recommended that developing countries prioritize the augmentation of stable and substantial foreign reserves as a strategy to alleviate the level of the current account deficit.
    Keywords: Capital inflow, current account deficit, economic growth, export demand, foreign reserves, import demand, foreign debt, foreign direct investment, foreign remittances
    JEL: F21 F24 F32 F43 O24
    Date: 2023–07
  6. By: Arjona, Román (European Commission, Directorate-General for Internal Market, Industry, Entrepreneurship and SME, Chief Economist Unit); Connell, William (European Commission, Directorate-General for Internal Market, Industry, Entrepreneurship and SME, Chief Economist Unit); Herghelegiu, Cristina (European Commission, Directorate-General for Internal Market, Industry, Entrepreneurship and SME, Chief Economist Unit)
    Abstract: This article develops an enhanced bottom-up and data-driven methodology to detect EU strategic dependencies using highly disaggregated product-level trade data. It identifies 204 products in sensitive industrial ecosystems where the EU experiences an important level of foreign dependencies. A subset of these products are then identified as particularly problematic given that their world trade networks can experience Single Point of Failures (SPOF). Since dependent products bear important risks in the event of unexpected disruptions, identifying them is the first step towards building resilience. Consequently, this analysis provides evidence based solutions to the EU’s open strategic autonomy agenda, including the efforts to diversify EU supply chains, to pursue partnerships with like-minded partners, and to strengthen the EU’s internal industrial capacity.
    Keywords: dependencies, supply chain disruptions, single points of failure, substitutability, trade networks, early warning
    JEL: L52 L60 F14 F61
    Date: 2023–03
  7. By: Hatton, Timothy J. (University of Essex)
    Abstract: From 1860 to 1913 the six colonies that became states of Australia strove to attract migrants from the UK with a variety of assisted passages. The colonies/states shared a common culture and sought migrants from a common source, the UK, but set policy independently of each other. This experience provides a unique opportunity to examine the formation of assisted immigration policies. Using a panel of colonies/states over the years 1862 to 1913 I investigate the association between measures of policy activism and a range of economic and political variables. Assisted migration policies were positively linked with government budget surpluses and local economic prosperity. They were also associated with political participation including the widening of the franchise and remuneration of members of parliament. While the reduction in travel time to Australia reduced the need for assisted migration, slumps in the UK increased the take-up of assisted passages.
    Keywords: colonial Australia, assisted passages, international migration
    JEL: F22 N37 N47
    Date: 2023–07
  8. By: Felix Montag (Tuck School at Dartmouth)
    Abstract: Policy choices often entail trade-offs between workers and consumers. I assess how foreign competition changes the consumer welfare and domestic employment effects of a merger. I construct a model accounting for demand responses, endogenous product portfolios, and employment. I apply this model to the acquisition of Maytag by Whirlpool in the household appliance industry. I compare the observed acquisition to one with a foreign buyer. While a Whirlpool acquisition decreased consumer welfare by $250 million, it led to 1, 300 fewer domestic jobs lost. Jobs need to be worth above $220, 000 annually for domestic employment effects to offset consumer harm.
    JEL: F61 L13 L40
    Date: 2023–08–09
  9. By: Ho, Florence Ut Meng
    Abstract: This paper develops a North-South quality-ladder model with northern innovative R&D, southern adaptive R&D and imitative R&D to analyze the effects of tariffs on innovation, technology transfer, relative wage and welfare. We find that increasing southern tariff decreases the relative wage between the North and the South permanently, increases the technology transfer rate permanently and decreases the northern innovation rate temporarily. In contrast, increasing northern tariff increases the relative wage permanently, decreases the technology transfer rate permanently and either increases or decreases the northern innovation rate, depending on the size of the North-South labor ratio. Moreover, we calibrate this model to the US-China data to perform a quantitative analysis. We find that imposing tariff in the home country yields welfare gain in itself and yields welfare loss in the foreign country. When both countries impose tariffs simultaneously, they can benefit from the welfare gains. The numerical results are consistent with the analytical policy implications.
    Keywords: Tariffs; Technology Transfer; Innovation; Foreign Direct Investment; Product Cycles.
    JEL: F13 F4
    Date: 2023–06–21
  10. By: Herzer, Dierk; Schmelmer, Niklas
    Abstract: This study is the first to examine the impact of both FDI from developed to developing countries (North-South FDI) and FDI from developing to other developing countries (South-South FDI) on energy intensity in developing countries. It is also the first in the FDI-energy intensity literature to carefully control for the endogeneity of FDI using several IV techniques, as well as the first in this literature to use a panel Granger causality approach. Applying these methods to an unbalanced panel of up to 57 economies over the period 2009 to 2019, we find that South-South FDI contributes to reductions in energy intensity in developing countries. This finding holds even when we use panel cointegration methods. In contrast, we find across all our estimation methods no evidence that North-South FDI reduces energy intensity in developing countries. The obvious policy implication of these findings is that policy makers in developing countries should focus on attracting South-South FDI, rather than on attracting North-South FDI.
    Keywords: Energy intensity; developing countries; South-South FDI; North-South FDI
    JEL: F21 F23 O13 Q43
    Date: 2023–08–03
  11. By: Schiersch, Alexander; Bertschek, Irene; Niebel, Thomas
    Abstract: Our paper contributes to the discussion about Europe's digital sovereignty. We analyze the relationship between firm performance and the diversification of sourcing countries for imported ICT goods. The analysis is based on administrative data for 3888 German manufacturing firms that imported ICT goods in the years 2010 and 2014. We find that firms that diversify the sourcing of ICT goods across multiple countries perform better than similar firms with a less diversified sourcing structure. This result holds for value added as well as for gross operational surplus as performance measures and for two different indicators of diversification.
    Keywords: ICT goods imports, global sourcing, digital sovereignty, firm performance
    JEL: F14 F23 L14 L23 D24
    Date: 2023
  12. By: Jaqueline Hansen; Valeria Merlo; Georg Wamser
    Abstract: We exploit exogenous variation in tax notches created by controlled foreign corporation (CFC) rules to better understand the profit-shifting behavior of multinational enterprises (MNEs) and its consequences for real activity. Using new data on CFC rules and information on direct parent-affiliate ownership links, our identification approach allows us to estimate an unbiased profit-shifting semi-elasticity of about 0.22. Removing incentives to shift profits to particular low-tax locations leads to profit relocation to ‘next-best’ low-tax countries, allowing firms to circumvent domestic taxation. We do not find any significant effects on parent shareholders, neither in terms of repatriated profit nor in terms of their real economic activity. Other entities within the MNE, where profits get relocated to, see a significant increase in various measures of real activity.
    Keywords: corporate taxation, profit shifting anti-tax-avoidance rules, multinational enterprise, firm organization
    JEL: F23 H25
    Date: 2023
  13. By: Alberto Chong (Department of Economics, Georgia State University and Department of Economics, Universidad del Pacifico); Daniel Velasquez (Department of Economics, University of Michigan)
    Abstract: We exploit unexpected and drastic unilateral tariffs reductions in Peru during the 2000s. We find that in districts where male employment was more vulnerable to these reductions, we observe a statistically significant increase in intimate partner violence with respect to less vulnerable districts. Our findings show that several causal paths may be at play, which appear to highlight the fact that these paths may complement and even exacerbate each other. Our findings hold when applying a broad array of robustness tests.
    Date: 2023–08
  14. By: Mak, Charles Ho Wang
    Abstract: This Perspective explores the ethical and legal implications of FDI in or near cultural heritage sites, weighing the potential benefits and drawbacks, and suggests measures to promote responsible FDI in this area, such as strengthening safeguards, implementing review processes, and encouraging voluntary codes of conduct to preserve cultural identity.
    Date: 2023
  15. By: Lin, Siyuan (Lehigh University); Argys, Laura M. (University of Colorado Denver); Averett, Susan L. (Lafayette College)
    Abstract: We examine whether women exposed to China's one-child policy (OCP) change their fertility decisions when they migrate to a country without fertility restrictions. Using American Community Survey data (2010–2020), we compare the childbearing decisions of Chinese-born women with varying degrees of exposure before migrating to the US to each other and a control group of other Asian immigrants. We find that Chinese women aged 35-45 exposed to the OCP for a longer duration have significantly fewer children than women who were not exposed to the OCP. These findings are robust to several specification checks.
    Keywords: fertility, one-child policy, immigrants, China
    JEL: F22 I15 J13 N35
    Date: 2023–07
  16. By: Kim, Taehee; Shikano, Susumu (University of Konstanz)
    Abstract: Recent political psychological studies on intergroup relationships emphasize the crucial role of emotion in attitude formation and change toward outgroups. They also showed that the distinct dimensions of emotion play some differentiated roles. Relying on these findings, we hypothesize that emotion mediates the impact of the crisis event on the attitudes toward foreign countries. We also argue that the impact of emotion can differ along the distinct dimensions. To provide empirical evidence, we focus on the case of Japan in summer 2012, in which the most part of the public experienced international crises with South Korea and China almost simultaneously but in an only mediated and remote way. Our empirical analysis using a panel survey showed that the dimensions of anger and hatred played a crucial role in attitude changes, while the dimension of fear has no direct impact. Further, we also found the other socio-demographic factors and political attitudes were mediated by the relevant dimensions of emotion, but had no direct impact.
    Date: 2023–08–04
  17. By: Xinge Ruan (Brandeis University); Nader Habibi (Brandeis University)
    Abstract: This article uses statistical analysis to explore the correlation between the quality of governance in a host country and the size and nature of China’s investments in that country, based on the available data for 2005-2020. We focus on two types of Chinese economic engagements with each host country: direct investment by Chinese firms and the volume of service contracts awarded to Chinese firms for construction projects. Overall, our statistical analysis demonstrates that China’s direct investments and service contracts both show significant correlations with the governance characteristics of the host country. At the same time, we observe a large degree of diversity in the significance of specific governance indicators across regions and economic sectors. The Regulation Quality indicator, for example, has a strong positive correlation with total investment and total service contract, but the significance is lost when the sample is restricted to the Middle East or South Asia. The most intriguing finding of our research is that in some sectors, the correlation between governance indicators and China's direct investments and service contracts varies significantly. The Voice and Accountability indicator has a positive correlation with China's direct investments but a negative correlation with China's service contracts for the entire sample. This suggests that China is awarded more service contracts in less democratic countries of these regions. An alternative explanation is that Chinese firms prefer to invest directly in more democratic countries and operate as contractors in less democratic countries. Similarly, we find a positive correlation between the absence of corruption and China's service contracts, but no significant correlation with its direct investments.
    Date: 2023–05
  18. By: Juan Carlos Moreno-Brid (Universidad Nacional Autonoma de México); Lorenzo Nalin (Universidad Nacional Autonoma de México); Edgar Perez-Medina (Universidad Nacional Autonoma de México)
    Abstract: We present a small analytical framework, built in the Balance of Payments Constrained Growth (BPCG) tradition, tailored to identify how specific financial and structural vulnerabilities of emerging economies (EMEs) restrict their expansion. This framework is applied to shed light on the impact of global shocks and of major macro policy changes in developed countries on the growth path of six economies. As we show, this impact is conditioned by the vulnerabilities and dynamics of their insertion on international trade and capital markets and their exposure to policy changes in the developed centers. Our work shows that the BPCG-approach is a relevant, simple tool to identify EMEs' challenges in the post-covid 19 era.
    Keywords: Balance of Payment Constraint Growth Model, Current account deficit, Emerging markets' vulnerabilities, Cross-border flows
    JEL: F32 F43
    Date: 2023–02–14
  19. By: Minetti, Raoul (Michigan State University, Department of Economics); Romanini, Giacomo (Bank of Italy); Ziv, Oren (Michigan State University, Department of Economics)
    Abstract: A substantial fraction of international banking is intermediated through banking hubs and complex multi-national routing. These flows are ignored or unaccounted for, both theoretically and empirically. We develop an N-country DSGE model of lending where banks choose the path of lending through a network of partner institutions in multiple countries. Banking hub countries arise endogenously as central nodes in the intermediation network. The model provides a framework to rationalize observable international statistics with theoretical models of banking gravity. It generates a set of bilateral locational flow of funds that conceptually matches aggregate (BIS LBS) statistics, as distinct from the ultimate demand and supply of lending. Using a series of calibrations for both node and edge shocks, we show that accounting for the network is crucial for understanding the propagation of shocks and the impact of banking consolidation on aggregate fluctuations. The analysis reveals that neglecting the multinational banking network can lead to biased conclusions about the aggregate effects of banking unions.
    Keywords: Heterogeneous Banks; Gravity; Intermediation Network; Contagion
    JEL: F40 G20
    Date: 2023–08–17
  20. By: Eichengreen, B.; Saka, O.
    Abstract: Using hand-collected data spanning more than a decade on European banks’ sovereign debt portfolios, we show that the trust of residents of a bank’s countries of operation in the residents of a potential target country of investment has a positive, statistically significant, and economically important association with its cross-border exposures. In identifying cultural stereotypes at the bank level, we show that corporate culture at bank headquarters is influenced by foreign subsidiaries for several reasons, including banks’ tendency to hire internally across borders for high-level managerial positions. We therefore leverage the geography of multinational bank branch networks to con- struct a bank-specific measure of culture that di↵ers across banks headquartered in the same country, at the same point in time, with regard to the same target country. This allows us to compare how sovereign exposures are a↵ected by cultural stereotypes while ruling out confounding factors at country and country-pair levels. The e↵ect of stereotypes is persistent over time, stronger for less diversified banks, and weaker for target countries whose bonds appear more frequently in bank portfolios. Cultural stereotypes are particularly salient when governments are hit by sovereign debt crises
    Keywords: cultural biases; stereotypes; trust; banks; sovereign debt
    Date: 2022

This nep-int issue is ©2023 by Luca Salvatici. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.