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on International Trade |
| By: | Pettersson, Jan (Department of Economics); Johansson, Lars M (Department of Economics) |
| Abstract: | Donor aid is often regarded as being informally tied (aid increases donorrecipient exports) and this effect is, in general, interpreted as being harmful to aid recipients. However, in this paper, using a gravity model, we show that aid is also positively associated with recipient-donor exports. That is, aid increases bilateral trade ows in both directions. Our interpretation is that an intensi ed aid relation reduces the e ective cost of geographic distance. We find a particularly strong relation between aid in the form of technical assistance and exports in both directions. When we disaggregate aid to specifically study the effects from trade-related assistance (Aid for Trade) the effect is small and fully accounted for by aid to investments in trade-related infrastructure. Our sample includes all 184 countries for which data is available during the period 1990 to 2005. |
| Keywords: | Foreign Aid; International Trade; Exports; Gravity; Aid for Trade |
| JEL: | F35 O19 O24 |
| Date: | 2009–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2009_005&r=int |
| By: | Sugita, Yoichi |
| Abstract: | This paper analyzes trade between firms that are heterogeneous in product quality in a simple general equilibrium model. The multi-sided heterogeneity of exporters and importers creates a new source of gains from trade. The opening of trade raises the quality of final goods by improving matching of .rms. The quality upgrading is decomposed as the short run effect of a reduction in the quality gap among parts and components and the long run effect of intensified competition among suppliers. Under the existence of fixed trade costs, firms’ trade pattern is consistent with a variety of stylized facts that have not been explained in the conventional love of variety model. Firms selectively trade with those with similar sizes at similar quality levels. Both exporting and importing are concentrated into large and high quality firms, though not all large and high quality firms engage in trade. Trade in intermediate goods improves the quality of even firms that do not import intermediate goods. |
| Keywords: | matching, heterogeneous ?firms, quality, vertical differentiation, trade in intermediate goods, offshoring. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:20&r=int |
| By: | James Feyrer |
| Abstract: | Establishing a robust causal relationship between trade and income has been difficult. Frankel & Romer (1999) use geographic instruments to identify a positive effect of trade on income. Rodriguez & Rodrik (2000) show that these results are not robust to controlling for missing variables such as distance to the equator or institutions. This paper solves the missing variable problem by generating time varying geographic instruments. The quantity of world trade carried by air has been increasing over time. Estimates from a gravity model show an increase in the elasticity of bilateral trade with regard to air distance over time while the elasticity with regard to sea distance has declined. This change has heterogeneous effects on the trade between pairs of countries depending on the relative sea and air distances between them. This heterogeneity in geography can be used to generate geography based predictions for bilateral trade that vary over time. These predictions can be aggregated and used as instruments for trade in a regression of income on trade. The time series variation allows for controls for country fixed effects, eliminating the bias from any omitted time invariant variables such as distance from the equator or historically determined institutions. Trade has a significant effect on income with an elasticity of roughly one half. Differences in predicted trade growth can explain roughly 17 percent of the variation in cross country income growth between 1960 and 1995. |
| JEL: | F1 F15 F4 F43 O4 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14910&r=int |
| By: | Yin-Wong Cheung (University of California, Santa Cruz); Matthew S. Yiu (Hong Kong Monetary Authority); Kenneth K. Chow (Hong Kong Institute for Monetary Research) |
| Abstract: | We study trade integration among 15 selected Asian and Oceanic economies using factor models. The principal component approach is employed to extract the common factor that drives trade integration from bilateral trade integration series. It is found that the estimated common trade integration factor has strong seasonal and deterministic components. In accordance with theory, the common trade integration factor is significantly associated with the economic growth and the trade barriers of the 15 economies. However, we find no evidence that the common trade integration factor is affected by foreign direct investment. The basic model is extended to incorporate an ASEAN factor that affects trade integration among the ASEAN economies in our sample. |
| Keywords: | Factor Model, Principal Component, Growth, Trade Barriers, ASEAN |
| JEL: | F15 F36 F42 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:132009&r=int |
| By: | Asche, Frank (University of Stavanger); Nøstbakken, Linda; Tveterås, Sigbjørn |
| Abstract: | , |
| Keywords: | Oligopsony; Residual supply; trade |
| JEL: | F12 F13 L13 |
| Date: | 2009–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2009_020&r=int |
| By: | Anders Akerman; Rikard Forslid |
| Abstract: | This paper introduces a market size dependent firm entry cost into the Helpman, Melitz and Yeaple (2004) (HMY) version of the Melitz (2003) model. This is a relatively small generalisation, which preserves the analytical solvability of the model. Nevertheless, our model yields several new results that are in line with data. First, the average productivity of firms located in a market increases in the size of the market. Second, the productivity of exporters is U-shaped with reference to export market size. Third, the productivity premium (the difference in average productivity) between exporters and non-exporters decreases in the home country size. Fourth, we derive a set of new results related to trade volume. It is shown that when the fixed entry cost of exporting declines, for instance as the result of economic integration, export shares converge. This prognosis is supported by the empirical section of the paper. Fifth, we use a multicountry version of our model to derive a gravity equation. Our specification yields a gravity equation a la Anderson and van Wincoop (2003), but where GDP per capita enters as an additional explanatory variable. |
| Keywords: | heterogenous firms, market size, market entry costs |
| JEL: | D21 F12 F15 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd09-056&r=int |
| By: | Akerman, Anders; Forslid, Rikard |
| Abstract: | This paper introduces a market size dependent firm entry cost into the Helpman, Melitz and Yeaple (2004) (HMY) version of the Melitz (2003) model. This is a relatively small generalisation, which preserves the analytical solvability of the model. Nevertheless, our model yields several new results that are in line with data. First, the average productivity of firms located in a market increases in the size of the market. Second, the productivity of exporters is U-shaped with reference to export market size. Third, the productivity premium (the difference in average productivity) between exporters and non-exporters decreases in the home country size. Fourth, we derive a set of new results related to trade volume. It is shown that when the fixed entry cost of exporting declines, for instance as the result of economic integration, export shares converge. This prognosis is supported by the empirical section of the paper. Fifth, we use a multicountry version of our model to derive a gravity equation. Our specification yields a gravity equation a la Anderson and van Wincoop (2003), but where GDP per capita enters as an additional explanatory variable. |
| Keywords: | heterogenous firms, market size, market entry costs |
| JEL: | D21 F12 F15 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:11&r=int |
| By: | Arnaud Costinot; Lindsay Oldenski; James Rauch |
| Abstract: | What determines the boundary of multinational firms? According to Williamson (1975), a potential rationale for vertical integration is to facilitate adaptation in a world where uncertainty is resolved over time. This paper offers the first empirical analysis of the impact of adaptation on the boundary of multinational firms. To do so, we first develop a ranking of sectors in terms of their groutinenessh by merging two sets of data: (i) ratings of occupations by their intensities in gproblem solvingh from the U.S. Department of Labor's Occupational Information Network; and (ii) U.S. employment shares of occupations by sectors from the Bureau of Labor Statistics Occupational Employment Statistics. Using U.S. Census trade data, we then demonstrate that, in line with adaptation theories of the firm, the share of intrafirm trade tends to be higher in less routine sectors. This result is robust to inclusion of other variables known to influence the U.S. intrafirm import share such as capital intensity, R&D intensity, relationship specificity, intermediation and productivity dispersion. Our most conservative estimate suggests that a one standard deviation decrease in average routineness raises the share of intrafirm imports by 0.26 standard deviations, or an additional 7% of import value that is intrafirm. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd09-059&r=int |
| By: | Richard Baldwin; Dany Jaimovich |
| Abstract: | This paper presents empirical evidence on the extent to which FTAs are gcontagioush, using empirical techniques inspired by the study of contagion in exchange rate crises. Applying a series of different econometric techniques, it tests the null hypothesis that the signing of an FTA between one nationfs trade partners has no affect on the probability of the nation signing a new FTA. The hypothesis is tested against other political, economical and geographical determinants of the FTA formation previously stated in the literature, finding evidence that the contagion phenomenon is present in different specifications and samples. |
| Keywords: | Contagion Effect, Free Trade Agreements and International Trade |
| JEL: | F13 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd09-057&r=int |
| By: | Fernandes, Ana M.; Paunov, Caroline |
| Abstract: | Over the past two decades, globalization, and more specifically the increased exposure to competition from low-price producers in China and India, has created a new economic environment for other emerging economies. The most advantageous way for manufacturing firms in those economies to position themselves in domestic and international markets is to offer upgraded and differentiated rather than"mundane"labor-intensive products. This paper investigates whether increased competitive pressure from imports forces firms to improve the quality of their products. The econometric analysis relies on a rich dataset of Chilean manufacturing plants and their products. Product quality is measured with unit values (average prices) and industry-level transport costs are used as an exogenous measure of import competition. The authors find a positive and robust effect of import competition on product quality. This effect is found to be particularly strong for non-exporting plants. The results also show that increased import competition from less advanced economies is the major cause for the positive impact on quality upgrading. The overall evidence points to the benefits of trade openness for product innovation but demonstrates at the same time that competitive pressure alone will not enable local plants to catch up with leading world producers. |
| Keywords: | Transport Economics Policy&Planning,Markets and Market Access,Economic Theory&Research,Water and Industry,Access to Markets |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4894&r=int |
| By: | Burger, M.J.; Oort, F.G. van; Linders, G.J.M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | Conventional studies of bilateral trade patterns specify a log-normal gravity equation for empirical estimation. However, the log-normal gravity equation suffers from three problems: the bias created by the logarithmic transformation, the failure of the homoscedasticity assumption, and the way zero values are treated. These problems normally result in biased and inefficient estimates. Recently, the Poisson specification of the trade gravity model has received attention as an alternative to the log-normality assumption (Santos Silva and Tenreyro, 2006). However, the standard Poisson model is vulnerable for problems of overdispersion and excess zero flows. To overcome these problems, this paper considers modified Poisson fixed-effects estimations (negative binomial, zero-inflated). Extending the empirical model put forward by Santos Silva and Tenreyro (2006), we show how these techniques may provide viable alternatives to both the log-normal and standard Poisson specification of the gravity model of trade. |
| Keywords: | international trade;gravity model;modified Poisson models;distance |
| Date: | 2009–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765014614&r=int |
| By: | Creskoff, Stephen; Walkenhorst, Peter |
| Abstract: | Many developing countries operate geographically delineated economic areas in the form of export processing zones, special industrial zones, or free trade zones. This paper provides an overview of the application of World Trade Organization disciplines to incentive programs typically employed by developing countries in connection with such special economic zone programs. The analysis finds that the disciplines under the Agreement on Subsidies and Countervailing Measures have the most immediate relevance for middle-income World Trade Organization members that are not exempt for certain"grandfathered"programs, but will also concern other developing countries in the future, as their exemption expires or their per-capita income passes a threshold of US$1,000. Incentives related to special economic zones can be broadly grouped into three categories: (i) measures that are consistent with the World Trade Organization, notably exemptions from duties and taxes on goods exported from special economic zones; (ii) measures that are prohibited or subject to challenge under World Trade Organization law, notably export subsidies and import substitution or domestic content subsidies; and (iii) and measures where World Trade Orgainzation consistency depends on the facts of the particular case. The paper provides a set of recommendations on how to eliminate questionable incentives. The single most important zone policy reform to achieve World Trade Organization compliance is to remove all requirements to export and permit importation of goods manufactured in special economic zones into the national customs territory without any restrictions other than the application of import duties and taxes. |
| Keywords: | Economic Theory&Research,Trade Law,Trade Policy,Taxation&Subsidies,Emerging Markets |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4892&r=int |
| By: | Park, Jee-Hyeong |
| Abstract: | International trade disputes often involve the WTO as a third party that generates impartial opinions of potential violations when countries receive imperfect and private signals of violations. To identify the role that the WTO plays in enforcing trade agreements, this paper first characterizes what countries can achieve alone in a repeated bilateral trade relationship in which they can secretly raise their protection levels through concealed trade barriers. In particular, countries adopt "private trigger strategies (PTS)" under which each country triggers a punishment phase by imposing an explicit tariff based on its privately observed imperfect signals of such barriers. This paper identifies the condition under which countries can restrain the use of concealed barriers based on simple PTS, where each country imposes its static optimal tariff in all periods under any punishment phase: The sensitivity of private signals rises in response to an increase in concealed protection. Any equilibrium payoff under almost strongly symmetric PTS will be identical to the one under simple PTS, as long as the initial punishment is triggered by a static optimal tariff, justifying the paper's focus on simple PTS. With countries maximizing their expected payoffs under the optimal PTS, they will not push down the cooperative protection level to its minimum attainable level, thus not setting it to the free trade level even when it is attainable. To analyze a possible role of the WTO, this paper considers "third-party trigger strategies (TTS)" under which the WTO allows each country to initiate a punishment phase based on the WTO's judgment (signals) about potential violations. The WTO changes the nature of punishment-triggering signals from private into public, enabling countries to use punishment phases of any length under TTS, which in turn facilitates a better cooperative equilibrium. The optimal TTS will involve an asymmetric and minimum punishment if the probability of a punishment phase being triggered is low enough, but it will entail punishments involving a permanent Nash tariff war if the probability of a punishment being triggered is high enough. A numerical comparison of the optimal TTS and optimal PTS indicates that the contribution of the WTO is likely to be significant when the signals of potential violations are relatively accurate. The WTO enables countries to adopt a more efficient punishment, such as the asymmetric and minimum punishment, which in turn enables countries to be less tolerant of potential violations and attain a higher level of cooperation as a result. |
| JEL: | F02 F13 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:19&r=int |
| By: | Bernhofen, Daniel M.; Brown, John C. |
| Abstract: | We exploit Japan's 19th century opening up to trade to test a general formulation of the Heckscher-Ohlin theorem. This formulation is based on Ohlin's measure of factor scarcity where autarky factor prices impose a refutable prediction on the economy's factor content of trade. Our test combines factor price data in Japan's autarky period with commodity trade data and a technology matrix in Japan's early free trade period. Our technology matrix is derived from a major Japanese survey of agricultural techniques during the early Meiji period, accounts by European visitors and numerous studies by Japanese and western scholars that draw on village records, business accounts and other historical sources. Evaluating Japan's factor content of trade during 1868-1875 at the corresponding autarky factor prices, we fail to reject the Heckscher-Ohlin prediction in each sample year. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:13&r=int |
| By: | Ben Zissimos (Department of Economics, Vanderbilt University) |
| Abstract: | This paper identifies a new terms-of-trade externality that is exercised through tariff setting. A North-South model of international trade is introduced in which the number of countries in each region can be varied. As the number of countries in one region is increased, each government there competes more aggressively with the others in its region, by lowering its tariff, to attract imports from the other region. In doing so, all countries in a region exert a negative terms-of-trade externality on each other, collectively undermining their own terms of trade and welfare. This externality can increase efficiency if the numbers of countries in both regions are increased simultaneously. |
| Keywords: | Comparative statics, efficiency, North-South, tariff war, terms of trade |
| JEL: | F02 F13 C72 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0904&r=int |