|
on International Trade |
| By: | Zehra Aftab (Pakistan Institute of Development Economics, Islamabad); Sajawal Khan (Pakistan Institute of Development Economics, Islamabad) |
| Abstract: | Earlier studies that investigated the J-Curve phenomenon for Pakistan employed aggregate trade data. These studies suffered from the “aggregation bias” problem. In order to overcome this constraint, this paper tests the effects of real exchange rate depreciation in the Pakistani Rupee on the bilateral trade balance between Pakistan and her 12 respective trade partners. These countries, together, account for almost half of Pakistan’s total trade. In order to differentiate between the long-run equilibrium and short-run disequilibrium dynamics, and also to deal with non-stationary data, the ARDL approach is used. The results do not provide any support for the standard J-curve phenomenon. |
| Keywords: | J-Curve, Trade Balance, Marshall-Lerner Condition |
| JEL: | F12 F14 F31 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2008:45&r=int |
| By: | Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova |
| Abstract: | Recent theoretical work predicts that an important margin of adjustment to deregulation or trade reforms is the reallocation of output within firms through changes in their product mix. Empirical work has accordingly shifted its focus towards multi-product firms and their product mix decisions. Existing studies have however focused exclusively on the U.S. Using detailed firm-level data from India, we provide the first evidence on the patterns of multi-product firm production in a large developing country during a period (1989-2003) that spans large-scale trade and other market reforms. We find that in the cross-section, multi-product firms in India look remarkably similar to their U.S. counterparts, confirming the predictions of recent theoretical models. The time-series patterns however exhibit important differences. In contrast to evidence from the U.S., product churning--particularly product rationalization -- is far less common in India. We thus find little evidence of "creative destruction". We also find no link between declines in tariffs on final goods induced by India's 1991 trade reform and product dropping. The lack of product dropping is consistent with the role of industrial regulation in India, which, like in many other developing countries, may prevent an efficient allocation of resources. |
| JEL: | F13 F14 L1 L6 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14127&r=int |
| By: | Tadashi Ito (IUHEID, The Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | Using NAFTA's effect on Mexico's exports as a natural starting point to conduct an empirical analysis on the explanatory power of the recent theoretical development of the heterogeneous firm trade models, this paper analyzes NAFTA's effect on the evolution of the exports of 'new' products from Mexico to the US. The evolution is shown to be in line with the predictions of both the heterogeneous firm trade (HFT) model and the quality heterogeneous firm trade (QHFT) model. After discussing the contrasting predictions of these two models on the unit price, the paper proposes a simple way to check the explanatory power of the QHFT model, exploring the unit price evolution of Mexico's exports. The paper shows a puzzling result which cannot be explained by the QHFT model. |
| Keywords: | NAFTA, Extensive margins |
| JEL: | F14 F15 |
| Date: | 2008–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heiwp06-2008&r=int |
| By: | David S. Jacks; Krishna Pendakur |
| Abstract: | What is the role of transport improvements in globalization? We argue that the nineteenth century is the ideal testing ground for this question: freight rates fell on average by 50% while global trade increased 400% from 1870 to 1913. We estimate the first indices of bilateral freight rates for the period and directly incorporate these into a standard gravity model. We also take the endogeneity of bilateral trade and freight rates seriously and propose an instrumental variables approach. The results are striking as we find no evidence that the maritime transport revolution was the primary driver of the late nineteenth century global trade boom. Rather, the most powerful forces driving the boom were those of income growth and convergence. |
| JEL: | F15 F40 N70 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14139&r=int |
| By: | Pol Antrà s; Gerard Padró i Miquel |
| Abstract: | How do foreign interests influence the policy determination process? What are the welfare implications of such foreign influence? In this paper we develop a model of foreign influence and apply it to the study of optimal tariffs. We develop a two-country voting model of electoral competition, where we allow the incumbent party in each country to take costly actions that probabilistically affect the electoral outcome in the other country. We show that policies end up maximizing a weighted sum of domestic and foreign welfare, and we study the determinants of this weight. We show that foreign influence may be welfare-enhancing from the point of view of aggregate world welfare because it helps alleviate externalities arising from cross-border effects of policies. Foreign influence can however prove harmful in the presence of large imbalances in influence power across countries. We apply our model of foreign influence to the study of optimal trade policy. We derive a modified formula for the optimal import tariff and show that a country's import tariff is more distorted whenever the influenced country is small relative to the influencing country and whenever natural trade barriers between the two countries are small. |
| JEL: | D72 D74 F11 F13 F51 F59 H23 P16 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14129&r=int |
| By: | Antràs, Pol; Padró i Miquel, Gerard |
| Abstract: | How do foreign interests influence the policy determination process? What are the welfare implications of such foreign influence? In this paper we develop a model of foreign influence and apply it to the study of optimal tariffs. We develop a two-country voting model of electoral competition, where we allow the incumbent party in each country to take costly actions that probabilistically affect the electoral outcome in the other country. We show that policies end up maximizing a weighted sum of domestic and foreign welfare, and we study the determinants of this weight. We show that foreign influence may be welfare-enhancing from the point of view of aggregate world welfare because it helps alleviate externalities arising from cross-border effects of policies. Foreign influence can however prove harmful in the presence of large imbalances in influence power across countries. We apply our model of foreign influence to the study of optimal trade policy. We derive a modified formula for the optimal import tariff and show that a country's import tariff is more distorted whenever the influenced country is small relative to the influencing country and whenever natural trade barriers between the two countries are small. |
| Keywords: | balance of powers; electoral competition; externalities; foreign influence; import tariffs; welfare |
| JEL: | D62 D72 D74 F11 F13 F51 F59 P16 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6884&r=int |
| By: | Paul R. Bergin; Ching-Yi Lin |
| Abstract: | This paper finds that currency unions and direct exchange rate pegs raise trade through distinct channels. Panel data analysis of the period 1973-2000 indicates that currency unions have raised trade predominantly at the extensive margin, the entry of new firms or products. In contrast, direct pegs have worked almost entirely at the intensive margin, increased trade of existing products. A stochastic general equilibrium model is developed to understand this result, featuring price stickiness and firm entry under uncertainty. Because both regimes tend to reliably provide exchange rate stability over the horizon of a year or so, which is the horizon of price setting, they both lead to lower export prices and greater demand for exports. But because currency unions historically are more durable over a longer horizon than pegs, they encourage firms to make the longer-term investment needed to enter a new market. The model predicts that when exchange rate uncertainty is completely and permanently eliminated, all of the adjustment in trade should occur at the extensive margin. |
| JEL: | F4 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14126&r=int |
| By: | Kurt Geppert; Martin Gornig; Anna Lejpras |
| Abstract: | Trade theory and economic geography suggest that the removal of trade barriers is likely to bring about more economic specialisation and potentially more diverse development paths between countries and regions. Thus, the deepening and extending European integration should be accompanied by an increasing regional specialisation. In contrast, our results for the period from 1995 to 2004 show considerably declining differences in the share of manufacturing in total value added across nations and regions of the EU. The decrease in sectoral specialisation is accompanied by a strong and almost uniform process of deindustrialisation. However, this trend is slowing down and manufacturing shares appear to be gradually approaching lower limits. These bounds are specific according to national affiliation and settlement types of regions. |
| Keywords: | Regional specialisation, deindustrialisation, EU, nonlinear modelling |
| JEL: | R11 O14 O18 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp801&r=int |
| By: | Andreas Haufler (University of Munich); Alexander Klemm (International Monetary Fund); Guttorm Schjelderup (Norwegian School of Economics and Business Administration) |
| Abstract: | This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with workers and capitalists that own internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax when preferences for public goods increase, or when a rising share of capital is employed in multinational firms. We further show how a rise in the wage share changes both the relative size of tax bases and the political influence of different income groups. The predicted relationships are tested using panel data for 23 OECD countries for the period 1980 through 2004. The results of the empirical analysis support our main hypotheses. |
| Keywords: | Capital and labour taxes; economic integration; multinational firms |
| JEL: | H20 H73 F15 F23 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:0810&r=int |