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on International Trade |
| By: | Benedetti Fasil, Cristiana (European University Institute); Borota, Teodora (Department of Economics) |
| Abstract: | This paper analyzes the role of product quality and labor efficiency in shaping the trade patterns and trade intensities within and across two groups of countries, the developed and richer North and the developing South. Taking prices as a proxy for quality, recent empirical literature identifies a positive relation between income per capita and both export and import prices, suggesting that rich countries trade goods of relatively higher quality. Instead of relying on specific demand side mechanisms such as non-homothetic preferences, we focus on the North-South differences in technology. We employ a four country North-South trade model with two dimensions of firm heterogeneity. Differences in firms’ product qualities and cost efficiencies result in a price distribution generating different consumption bundles and the observed export and import prices across rich and poor countries. Furthermore, the resulting total expenditure allocation across quality shows that the North (South) spends a larger share of its income on high (low) quality even with the same homothetic preferences across regions. |
| Keywords: | International trade patterns; North-South trade; import and export prices; heterogeneous firms; product quality |
| JEL: | F10 F12 F14 L11 L15 |
| Date: | 2010–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2010_007&r=int |
| By: | Persson, Maria (Research Institute of Industrial Economics (IFN)) |
| Abstract: | The literature on trade facilitation has mostly focused on implications for trade volumes. However, recent theoretical contributions have emphasized that trade costs – such as transaction costs related to cross-border trade procedures – affect both the traded volumes of “old” goods (the intensive margin) and the range of traded goods (the extensive margin). This paper therefore tests whether trade facilitation affects the extensive margin by counting the number of 8-digit products that are exported from developing to EU countries, and using this as the dependent variable in an estimation. Moreover, it also tests whether the extensive margins in differentiated and homogeneous goods are affected in the same way by transaction costs. Estimation results suggest that if export transaction costs – proxied by the number of days needed to export a good – declined by 1 per cent, the number of exported differentiated and homogeneous products would rise by 0.7 and 0.4 per cent respectively. Policy simulations further illustrate that if all countries were as efficient at the border as the most efficient country at the same level of development, the number of exported differentiated and homogeneous products would increase by 64 and 29 per cent respectively. |
| Keywords: | Trade Facilitation; Extensive Margin; Export Diversification; Differentiated Products; Homogeneous Products; European Union; Developing Countries |
| JEL: | C21 F13 O24 |
| Date: | 2010–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0828&r=int |
| By: | Holger G”rg (Christian-Albrechts-University Kiel, CEPR); L szl¢ Halpern (Institute of Economics - Hungarian Academy of Sciences); Bal zs Murak”zy (Institute of Economics - Hungarian Academy of Sciences) |
| Abstract: | In this paper we analyse the relationship between gravity variables and f.o.b. export unit values using Hungarian firm-product-destination data. By taking firm-product level selection into account we show that export unit values increase with distance even for particular firm-product combinations. This cannot be explained by models assuming firm- or even firm-product level selection and constant markups. The differences are important quantitatively; price differences in Hungarian exports between Germany and the US are about 30%. We also show that unit values are positively related to GDP/capita and that there is a weak negative relationship between unit values and market size. We propose two possible explanations: first, firms may export different quality versions of the same product to different markets. Secondly, directly exporting firms may capture part of the markups on transport costs in their f.o.b. prices. |
| Keywords: | export, price, selection, Hungary |
| JEL: | D40 F12 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1003&r=int |
| By: | INSEL, Aysu; TEKCE, Mahmut |
| Abstract: | This study analyzes the trade flows of the Gulf Cooperation Council (GCC) both among its member countries and with the rest of the world for the 1997-2002 and 2003-2007 periods. In this paper, the research question is whether the trade flows of the GCC countries with their partners have sustained and/or they have developed new relations over time, mainly after the 2003 Customs Union agreement of the GCC. For this purpose, fixed effects models have been estimated in order to obtain individual country effects variable. Then, trade model as a function of distance and income variables and the country effects model as a function of the time invariant control variables have been estimated simultaneously within the panel analysis using the Least Squares and Generalised Method of Moments under the assumption of the presence of cross section heteroskedasticity and the robust standard errors. It has been found that: (1) The order of top fifteen trade partners has changed significantly from the EU countries and the US to the Asian countries after 2003. (2) Exports and imports of the GCC countries are related to the wealth of the partner countries, but not to their distance, mainly due to the nature of their exported and imported goods, the characteristic of the region and developments in transportation facilities. |
| Keywords: | Gulf Cooperation Council Countries; Trade Flows; Gravity model; Panel Analysis; System Estimation |
| JEL: | O53 F14 C33 C01 |
| Date: | 2010–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:22130&r=int |
| By: | Stepanok, Ignat (Dept. of Economics, Stockholm School of Economics) |
| Abstract: | In this paper, I present a quality ladders endogenous growth model where firms differ in their productivities. I study the effect openness to trade has on firm productivity and firm turnover. Most theoretical papers in this literature assume an exogenous firm turnover rate. In this paper, the firm turnover rate is endogenously determined and in line with the empirical evidence, it depends on variable costs to trade. The paper is inspired by the theoretical work of Melitz (2003) and obtains Melitz-type results but with a different set of assumptions. In particular, I assume that firms invest in learning how to become exporters. I show that exporters are on average more productive than non-exporters and sell their products at higher prices. I also find that trade liberalization increases firm productivity and leads to a higher steady-state firm turnover rate, consistent with the empirical evidence. |
| Keywords: | trade liberalization; heterogenous firms; endogenous turnover; endogenous growth |
| JEL: | F12 F13 F43 O31 O41 |
| Date: | 2010–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0727&r=int |
| By: | Borota, Teodora (Department of Economics) |
| Abstract: | Recent evidence on world trade patterns reveals North-South specialization across products of the same industries and product groups but different quality, which is not matched by the predictions of traditional and new trade theory. This paper analyzes a model of North-South trade and endogenous growth through innovation and imitation that can predict the observed trade patterns. The model is used to re-examine the impact of trade and Intellectual Property Rights (IPR) protection on both the innovation in the North and the imitational lag of the South. Opening to trade increases the growth rate and welfare of both regions, but results in a larger lag in the quality level of the South. With free trade the quality lag of the South is positive even with no IPR protection as a result of a revealed comparative advantage in lower quality goods production and trade. This contradicts the common predictions of Southern take-over of the whole industries due to bad IPR enforcement. Stronger IPR protection has a negative effect on growth and deteriorates the lag of the South, but the welfare effects of the alternative IPR policy instruments may be different. |
| Keywords: | North-South trade; quality heterogeneity; endogenous growth; innovation and imitation; intellectual property rights |
| JEL: | F12 F43 O31 O33 O34 |
| Date: | 2010–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2010_006&r=int |
| By: | Hess, Wolfgang (Lund University); Persson, Maria (Research Institute of Industrial Economics (IFN)) |
| Abstract: | The recent literature on the duration of trade has predominantly analyzed the determinants of trade flow durations using Cox proportional hazards models. The purpose of this paper is to show why it is inappropriate to analyze the duration of trade with continuous-time models such as the Cox model, and to propose alternative discrete-time models which are more suitable for estimation. Briefly, the Cox model has three major drawbacks when applied to large trade data sets. First, it faces problems in the presence of many tied duration times, leading to biased coefficient estimates and standard errors. Second, it is difficult to properly control for unobserved heterogeneity, which can result in spurious duration dependence and parameter bias. Third, the Cox model imposes the restrictive and empirically questionable assumption of proportional hazards. By contrast, with discrete-time models there is no problem handling ties; unobserved heterogeneity can be controlled for without difficulty; and the restrictive proportional hazards assumption can easily be bypassed. By replicating an influential study by Besedeš and Prusa from 2006, but employing discrete-time models as well as the original Cox model, we find empirical support for each of these arguments against the Cox model. Moreover, when comparing estimation results obtained from a Cox model and our preferred discrete-time specification, we find significant differences in both the predicted hazard rates and the estimated effects of explanatory variables on the hazard. In other words, the choice between models affects the conclusions that can be drawn. |
| Keywords: | Duration of Trade; Continuous-Time versus Discrete-Time Hazard Models; Proportional Hazards; Unobserved Heterogeneity |
| JEL: | C41 F10 F14 |
| Date: | 2010–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0829&r=int |
| By: | Thorsten Hansen (University of Munich) |
| Abstract: | This paper studies the impact of trade liberalization in terms of tariff cuts within the Eastern European enlargement on German and Austrian firm productivity. Unique matching of data from 1994 to 2003 suggests that tariff reductions raise parent firm productivity significantly. A ten percentage point decrease in tariff rates can lead to total factor productivity gains of up to 2 percent. The data allow distinction between three types of tariffs: output, intra-firm and input tariff rates. The size of the results strongly depends on the type of tariff and country analyzed. |
| JEL: | F12 F13 F23 L22 L23 O14 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:316&r=int |
| By: | Baldwin, John R.; Yan, Beiling |
| Abstract: | We examine the simultaneous effects of real-exchange-rate movements and of tariff reductions on plant death in Canadian manufacturing industries between 1979 and 1996. We find that both currency appreciation and tariff cuts increase the probability of plant death, but that tariff reductions have a much greater effect. Consistent with the implications of recent international-trade models involving heterogeneous firms, we further find that the effect of exchange-rate movements and tariff cuts on exit are heterogeneous across plants - particularly pronounced among least efficient plants. Our results reveal multi-dimensional heterogeneity that current models featuring one-dimensional heterogeneity (efficiency differences among plants) cannot fully explain. There are significant and substantial differences between exporters and non-exporters, and between domestic- and foreign- controlled plants. Exporters and foreign-owned plants have much lower failure rates; however, their survival is more sensitive to changes in tariffs and real exchange rates, whether differences in their efficiency levels are controlled or not. |
| Keywords: | Manufacturing, Business performance and ownership, Business adaptation and adjustment, Entry, exit, mergers and growth |
| Date: | 2010–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2010061e&r=int |
| By: | James R. Markusen |
| Abstract: | A major role for per-capita income in international trade, as opposed to simply country size, was persuasively advanced by Linder (1961). Yet this crucial element of Linder’s story was abandon by most later trade economists in favor of the analytically-tractable but counter-empirical assumption that all countries share identical and homothetic preferences. This paper collects and unifies a number of disjoint points in the existing literature and builds further on them using simple and tractable alternative preferences. Adding non-homothetic preferences to a traditional models helps explain such diverse phenomenon as growing wage gaps, the mystery of the missing trade, home bias in consumption, and the role of intra-country income distribution, solely from the demand side of general equilibrium. With imperfect competition, we can explain higher markups and higher price levels in higher per-capita income countries, and the puzzle that gravity equations show a positive dependence of trade on per-capita incomes, aggregate income held constant. In all cases, the effects of growth are quite different depending on whether it is growth in productivity or through factor accumulation. The paper concludes with some suggestions for calibration, estimation, and gravity equations. |
| JEL: | F1 F10 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15903&r=int |
| By: | David Atkin (Economic Growth Center, Yale University) |
| Abstract: | This paper introduces habit formation into an otherwise standard model of international trade. Household tastes evolve over time to favor foods consumed as a child. The opening of trade causes preferred goods to rise in price, as these were relatively inexpensive in autarky. Neglecting the correlation between tastes and agro-climatic endowments overstates the short-run nutritional gains from agricultural trade liberalization and masks potential caloric losses for laborers. I examine the predictions of this model of trade with habit formation using household survey data from India, both by looking across Indian regions and by examining the consumption patterns of inter-state migrants. |
| Keywords: | international trade, habit formation, India, Tastes, nutrition |
| JEL: | O10 O12 Q17 F10 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:986&r=int |
| By: | Masso, Jaan; Roolaht, Tõnu; Varblane, Urmas |
| Abstract: | A growing literature is trying to analyse the productivity gap between domestic and foreign firms with differences in innovation indicators. In our paper we analyse the relationship between inward and outward FDI at either company or industry level and the innovation behaviour of companies in Estonia. We use company-level data from three waves of the Community Innovation Surveys, which are combined with financial data from the Estonian Business Register and FDI data from the balance of payments statistics. For the analysis we apply a structural model involving equations on innovation expenditure, innovation outcome and productivity, and also innovation accounting and propensity score matching approaches. Our results show that the higher innovation output of foreign owned companies vanishes after various company characteristics are controlled for, but there were significant differences in innovation inputs such as the higher use of knowledge sourcing and the lower importance of various impeding factors. Outward investment has a positive influence on innovativeness among both domestic and foreign owned companies |
| Keywords: | innovation, internationalisation, foreign direct investments, catching-up countries |
| JEL: | F10 F23 O30 |
| Date: | 2010–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2010-05&r=int |
| By: | OKUBO Toshihiro; TOMIURA Eiichi |
| Abstract: | This paper empirically examines how productivity distributions of firms vary across regions based on Japanfs manufacturing census data. We confirm the established finding of higher average productivity in core regions, but find that firm productivity is distributed with wide dispersions, especially in core regions. Our firm-level estimates demonstrate that the productivity distribution of firms tends to be noticeably left-skewed deviating from the normal distribution, especially in regions with weak market potential but also in agglomerated or urbanized regions. These findings suggest that agglomeration economies are likely to accommodate heterogeneous firms to co-exist in the same region. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:10017&r=int |
| By: | OKUBO Toshihiro; TOMIURA Eiichi |
| Abstract: | In an economic geography model with firm heterogeneity, Baldwin and Okubo (2006) show that regional policies for promoting periphery development attract low-productivity firms and adversely affect the productivity gap within a country. This paper empirically examines their theoretical prediction by using plant-level data during active relocation policies in Japan. Our estimation results from plant-level regressions and propensity-score matching that are generally consistent with the theory. Compared to other regions, those targeted by policies, especially by industrial relocation subsidy programs, tend to have low-productivity plants. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:10016&r=int |
| By: | Thorsten Hansen (University of Munich) |
| Abstract: | This paper studies the impact of innovation on the organizational structure. The theoretical framework predicts that a larger parental pool of knowledge raises the probability of offshoring. This holds in a national as well as an international context. However, when the producer loses territorial protection, the changeover from non-integration to integration is delayed. Employing data on German firms investing in Eastern Europe finds empirical evidence for the theoretical predictions. The results are robust to different measurements and an instrumental variable regression. |
| JEL: | D23 D51 F23 L14 L21 L22 L23 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:315&r=int |
| By: | Siddig, Khalid |
| Abstract: | The latest episode of the armed conflict between Northern and Southern Sudan erupted in 1983 and ended with the signing of the "Comprehensive Peace Agreement (CPA)" in 2005. The CPA allows for a referendum on independence for South Sudan in 2011. A similar scenario is possible for Darfur, where an armed conflict broke out in 2003 over demands for greater decentralization and development in the region. The peace agreement between the central government and the Eastern Sudan region continues to be fragile and the risk of escalation of across the border spillovers of conflicts with Uganda and Chad persists. The U.S., EU, among other global players, is putting pressure on the Khartoum government to change its policies. Economic sanctions are among the tools used by the U.S. government while encouraging others follow suit. This paper investigates the response of the Sudanese economy to eliminating trade flows with the EU in the first phase and with East-Asian countries in the second. It discusses the changes in the macro-indicators, trade variables, and welfare measures that would result. Moreover, it assesses the potential trade diversion and resource reallocation due to sanctions in each phase. To simulate these scenarios, detailed economic databases for Sudan, EU, East-Asian region, MENA, COMESA, and the rest of the world are needed. For this purpose, GTAP Africa database and the standard GTAP model are employed. The 57 sectors of Africa database are aggregated to ten sectors including: grains and crops, livestock and meat products, mining and extraction, processed food, textiles and clothing, light manufacturing, heavy manufacturing, utilities and construction, transport and communication, and other services. Moreover, the database regions are aggregated to six including Sudan, the EU, East Asia, MENA, COMESA, and the Rest of the world. Results show that Sudanese trade reallocates to Asia in the first phase and to COMESA and MENA regions in the second. Sanctions exact a devastating toll on the Sudanese economy: GDP declines, trade shrinks, and welfare deteriorates. The deterioration in the country’s trade is mainly in the imports side, which justifies an improvement of the country’s balance of trade, while welfare losses are derived by a deteriorated terms of trade and allocative efficiency. |
| Keywords: | Sudan; sanctions; GTAP Africa database; EU; East Asia |
| JEL: | F16 C68 C02 D58 F51 |
| Date: | 2010–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:22041&r=int |