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Firms in International Trade: Trade Policy Implications of the New New Trade Theory
Abstract
This paper explores the implications of recent developments in firm-based trade theory and empirics for trade policy and negotiations. While traditional trade theory focused on the country, and the new trade theory of the 1980s adopted the industry as the unit for analysis, the newest theory emphasizes the role of firms and firm heterogeneity in international trade. We describe insights from this reformulation of theory and the empirical literature that illuminates it. The realities of trade as now understood show the need for a new new trade policy. Evaluating trade at the level of the firm implies that overcoming firm-level fixed costs of trade and reducing uncertainty lead to increased trade along margins that generate the highest productivity, innovation and welfare gains. The traditional market access agenda ought now to be less important on the multilateral agenda than services, standards, trade facilitation, procurement and innovation policy. The analytical needs of a new new trade policy require new models and more access to firm-level data to formulate and evaluate the multifaceted impacts of trade policy.
... Consequently, least-developed and developing countries are more likely to trade with developed countries than among themselves (Mohammed & Magai, 2019). The general policy prediction, therefore, is that economic welfare increases through the mutual specialisation prompted by the removal of trade barriers (Ciuriak et al., 2014). ...
... Today, however, actual trade is proving to be mostly intra-industry trade and trade between countries that are relatively similar in their supplies of factor endowments and levels of technology, as explained by the 'new trade theory' (Ciuriak et al., 2014). This theory provides two primary reasons why countries trade. ...
... However, empirical findings on the potential LBE effect are mixed [11,12], and several reasons have been cited to explain their inconclusiveness, such as the lack of a coherent theoretical framework that can guide LBE-related empirical research [13], the need for a dataset sufficiently long to enable the detection of LBE effects [7,14], methodological problems [13], such as the role of unobservable factors (e.g., management rather than productivity concerns), the variety of assessment techniques employed, firm heterogeneity, industry-and country-specific (exporting-and partner-based) factors, spillovers to non-exporters, and the role of imports and reallocation effects. ...
... As the knowledge economy rapidly evolves and global competition intensifies due to increased trade openness, more attention is being paid to knowledge assets in the global marketplace. In the context of heterogeneous trade theory [11], international competitive and knowledge-based environments force low-productivity companies to shut down. Knowledge assets lead to innovation (e.g., [18,19]) and productivity enhancement (e.g., [20,21]); this is pivotal as knowledge assets constitute one of the most vital firm-specific factors for an organization's sustainable growth. ...
Using panel data from Korean manufacturing firms, this study empirically investigates how knowledge assets impact the relationship between exports and productivity. We consider a scenario in which firms are situated in a globally competitive, knowledge-based environment. We establish a dynamic panel vector autoregressive model by considering the outcomes of various panel framework tests. A generalized method of moments estimator is employed to test the dynamic relationships among the variables, and a post-estimation test, Granger causality test, and impulse response test are performed. Our findings indicate the existence of a learning-by-exporting effect on the enhancement of total factor productivity (TFP). The result show that TFP can be improved by interacting with exports and knowledge assets, and that firms’ knowledge assets significantly and positively affect their exports. However, industry competition, as an external force, does not contribute to boosting firms’ productivity. We highlight the importance of continuously upgrading productivity, exports, knowledge assets, and industry competition by demonstrating that the present levels of these elements serve as the main source of their own future values. Finally, the implications of our results are outlined.
... Agri-food trade also involves complex value chains. In recent firm-level trade theory and policy (see Lapham, in this volume, and Ciuriak et al. 2015), negotiators aim to lower the fixed costs of participating in international markets, and to facilitate importing as well as exporting, by eliminating tariffs on intermediate inputs and addressing regulatory uncertainty all along the supply chain. ...
... Defining a negotiation on the basis of a supply chain also might help to overcome the negotiating disadvantages of small groups discussed above. This argument has limits, since governments are also interested in the extensive margin of trade — that is, the expansion of trade in products that previously were not traded, the diversification of exported prod-ucts into new markets and the entry of new trading firms, where a multilateral approach can be simpler (Ciuriak et al. 2015). It is interesting, therefore, that all these new things are appearing in trade negotiations, and it is interesting that the TPP has a number of novel chapters. ...
Canada has an effective trade agreement with all of our significant trading partners in the WTO, but its rules are slow to adapt to the rapidly changing economic realities analyzed in other chapters in this volume. As trade negotiators experiment with alternatives in a G-zero world without a country or group of countries able to impose global order, I question two common suppositions: that less-than-fully multilateral agreements are easier to negotiate; and that such preferential negotiations can more readily achieve the new agreements necessary for twenty-first-century trade. I conclude that proliferating preferential agreements are a symptom of fragmented global order, but they are not necessarily a solution. With respect to the first supposition, negotiators are experimenting with agreements that vary on the topics covered, the number of participants engaged, the methods of negotiation and the legal relation of the results to the WTO. These negotiations will be hard to conclude, and harder to ratify. With respect to the second supposition, I also have low expectations for the substantive results of the current set of negotiations. Important aspects of the twenty-first-century trade policy agenda will not be covered, and significant traders such as China will be omitted. We cannot know the results of this natural experiment in negotiation modalities, but I suspect that the future will require renewed efforts to strengthen the WTO.
... With a fi xed number of fi rms, some quit in the long-run closure, which endogenously determines the fi rm and industry productivity and their shares in local and world markets. 3.2 GTAP-FDI model Ciuriak et al. (2015 and explored quantitative eff ects of the TPP and CPTPP in an applied theoretical framework using fi rm-based new trade theory. However, as the GTAP-HET, GTAP-FDI and all GTAP-based models originate from the GTAP framework as the fundamental paradigm, its widespread application is quite well-known in the public domain for replication in separate contexts. ...
Considerable diffusion of technology occurs via global trade and Foreign Direct Investment (FDI) while firm heterogeneities cause considerable production heterogeneities. Hi-tech products and investment goods of differentiated varieties from emerging and developed economies are vehicles of superior technology. Given this stylized evidence, we analyze factors facilitating (or, inhibiting) technological spillover to the domestic firms in the host nations in a counterfactual scenario of Trans-Pacific-Partnership (TPP) deal. By using a mixture interface of Global Computable General Equilibrium (CGE) models of FDI (GTAP-FDI) and firm heterogeneity model of Global Trade Analysis Project, GTAP Heterogeneous (GTAP-HET), we calibrate impacts of trade and FDI spillovers on: (i) global production; (ii) trade patterns; (iii) welfare; and (iv) regional productivity gains. Importance of regional trade agreements and policy for productivity spillovers is highlighted.
Keywords: GTAP, CGE, Firm-Heterogeneity, FDI, Productivity Spillover, TPP.
JEL Classifications: F11, F21, O33, O24
... A few decades of evolutions in international trade has made markets borderless and offered consumers product options from across the world (Zhou, Yang, and Hui 2010;Sternquist 1994). Firms are considering the entire world as their market, and the size of the international market presents an inescapable opportunity (Ciuriak et al. 2015). Due to these factors, new dimensions are added to customers' decision-making related to identifying and selecting local and foreign products, adding to the factors marketers need to examine to design their product mix (Zhou 2005;Sulhaini, Rinuastuti, and Sakti 2019). ...
Globalization has added new dimensions to consumers’ decision-making. Consumer Ethnocentrism is among the critical variables affecting consumers’ decisions to purchase foreign products. Consumer Ethnocentrism research has gained momentum in the last few decades, and a copious amount of literature is available on this subject. This article presents an overview of Consumer Ethnocentrism literature and a compressive review of research work on the relationship between “Consumer Ethnocentrism” and “Product Evaluation” with critical insights from previous literature findings. There is a fractured opinion on the subject of whether Consumer Ethnocentrism leads to a lower quality evaluation of foreign products or whether consumer preference for the domestic product is purely out of a feeling that it is unfair to buy a foreign product. We also provided future research directions using TMC (Theory, Methodology, and Context) framework in line with earlier studies.
... Additionally, the division of labor is different, thus, reducing costs (such as transportation costs, inventory costs, and transaction costs) [20,21]. According to the new trade theory, gathering in a certain region can better uncover the comparative advantages of various enterprises [22,23]. This forms vertical and horizontal cooperation, and improves the utilization efficiency of labor resources, such as in the Zhejiang Yiwu model [24] and Wenzhou model [25]. ...
Economic development often leads to the misallocation of labor resources, so reforming the way land is allocated is important for developing a strategy to address the insufficient supply and oversupply of labor in China. This paper uses panel regression analysis to quantitatively measure the effect of the market supply of construction land (MSCL) on labor resources misallocation (LMIS). The results show that LMIS decreased year-by-year during the study period. The development of the MSCL can effectively reduce LMIS. The negative effect of the MSCL in the central region is greater than that in the eastern region, and the negative effect in the western region is the smallest. There is a single-threshold effect on the impact of the MSCL on LMIS. Specifically, when the MSCL is less than 18,045 hectares, the impact effect is −0.324, and when the MSCL is higher than 18,045 hectares, the effect is not significant. Moreover, the impact of the MSCL on LMIS has a spatial spillover effect, which is greater than the direct effect. Labor resources tend to migrate to economically developed areas, not just adjacent areas. These conclusions are of great significance for reducing LMIS from the perspective of land system reform in China.
... Additionally, the division of labor is different, thus, reducing costs (such as transportation costs, inventory costs, and transaction costs) [20,21]. According to the new trade theory, gathering in a certain region can better uncover the comparative advantages of various enterprises [22,23]. This forms vertical and horizontal cooperation, and improves the utilization efficiency of labor resources, such as in the Zhejiang Yiwu model [24] and Wenzhou model [25]. ...
From the perspective of the threefold development of urbanization, namely, in terms of population, land and the economy, this paper studies the evolution characteristics of the multi-dimensional gap between urban and rural areas based on provincial panel data from 2000 to 2018 in China, using the Kernel Density Estimation and Fixed Effect Model. The study also quantitatively calculates the influence degree of population urbanization (PUR), industrial urbanization (IUR) and land urbanization (LUR) on the gap of the social economic system (SEC) and residents’ living system (RLS) between urban and rural areas. The results were as follows. (1) The overall gap between urban and rural areas (URG) in China has decreased, and urban and rural development is gradually becoming unbalanced in eastern, central and western China. (2) PUR was found effectively to narrow the SEC and RLS. IUR expanded the URG; IUR has also widened the RLS between the eastern provinces of China and the provinces in contact with central and western China. Meanwhile, LUR could effectively expand the SEC, especially in the eastern coastal areas. (3) With the development of urbanization, the gap between urban and rural financial investment, labor production remuneration, quality of life, and capacity to pay by means of transport will be narrowed. The key implication of these findings is that future relevant measures and policies should be formulated according to local conditions, in order to promote the implementation of rural economic development.
... In this context, firms can reduce fixed trade costs, and can reduce uncertainties that leads to higher productivity, innovation and welfare (A. Amjad, Ehsan, Amjad, & Gillani, 2021;Ciuriak, Lapham, Wolfe, Collins-Williams, & Curtis, 2015). The mechanisms of economic theory focus on foster growth and reducing poverty through specialization, competition, scale economies, incentives for macroeconomic stability and innovation (Ahmad, Bashir, & Hussain, 2018;Bergh & Nilsson, 2014). ...
Recent developments which were coined to the opening up of borders have attracted interest of many researchers from many disciplines. A lot of work can be observed regarding the role of globalization / internationalization on economic growth and social development, this study specifically explores the implications of globalization on the ultimate goal that is life longevity. Adapting from the Kuznets curve, this study proposed a quadratic function of economic globalization and life longevity. The results using panel the ARDL model for the SAARC region, it can be seen that expansion of trade globalization de jure and management of financial globalization de facto and de jure may help them to increase longevity in the long run.
... WTO agreements allow trade remedy investigations based on a sample of a country's firms to result in tariffs that would be applied on imports of all firms in that country. That makes no sense in a global value chain world (Ciuriak et al., 2015;Mavroidis & Sapir, 2008). More important in this context, we do not yet know how to construct country-level disciplines on the basis of subsidies revealed by firm-level analysis. ...
State support remains a leading cause of tension in international commercial relations. Governments see trade distortions that look like they were caused by industrial subsidies, but lack data to illuminate that state support. In the 1980s the Organisation for Economic Co‐operation and Development (OECD) developed an index that helped countries to see the overall incidence of agricultural subsidies, initially called the Producer Subsidy Equivalent (PSE) and the Consumer Subsidy Equivalent (CSE). Are there lessons for today in the PSE approach? I try to answer that question from the standpoint of economics: how did the PSE evolve, what is it, is the concept relevant to industrial subsidies? And of politics: how was OECD able to create the tool, and do present conditions permit something similar? The PSE was a response to a shared perception of crisis. It drew on well‐established concepts in the agricultural economics and trade literatures. And it works best in a context where market power is sufficiently diffuse that a price gap between domestic and world prices can be calculated. Only some of those conditions can be met when applying the approach to concentrated industries dominated by large firms that operate in multi‐country supply chains.
... We therefore restrict the scope of the analysis to just one channel through which market opening may affect economic performance. We do so in part because this has been the focus of the recent economic and political science literature analyzing the effects of trade policies (e.g., Barone and Cingano 2011;Mansfield and Milner 2012;Ciuriak et al. 2014;Osgood 2018), reflecting the theoretical prediction that trade policy will affect the productivity performance of firms and sectors by impacting on the cost and quality of available intermediate inputs. Another reason is that input-output linkages (from upstream services to downstream manufacturing) allow us to exploit disaggregated data on manufacturing sectors, permitting the use of demanding batteries of fixed effects to minimize potential endogeneity due to observable or unobservable omitted variables. ...
This paper investigates how national economic regulation shape the impacts of reducing external barriers to services trade for a sample of European countries. Notwithstanding far-reaching integration of services markets there is significant heterogeneity in domestic regulation and governance across European economies. We show this affects the potential downstream productivity effects of external services trade policy. In some cases, liberalization can substitute for weak regulation; in others there is a complementary relationship. Thus, the productivity effects associated with services market access liberalization depend on the quality of domestic economic regulation. EU-specific measures to promote internal trade in services – proxied by implementation of the Services Directive – are found not to have such moderating effects. An implication of our findings is that EU governments should do more to assess how specific dimensions of domestic regulatory regimes influence the size and distribution of the effects of services trade reforms.
... The latest trade models also highlight the importance of the reallocation of resources (within one sector), as a consequence of changes observed in the trade costs, and the interplay between export performance and firms' innovation capacity or productivity (Altomonte, Aquilante, Békés, & Ottaviano, 2013;Brodzicki, 2017;Cieślik, Michałek, & Szczygielski, 2016;Ciuriak, Lapham, Wolfe, Collins-Williams, & Curtis, 2015;Gajewski & Tchorek, 2017). These reallocations, i.e. as a consequence of trade liberalisation, imply productivity increases within a sector rather than inter-sectoral growth. ...
Objective: The objective of this article is to evaluate the role of specialisation in the
export success of counties (powiats) (LAU 1) in Poland between 2004 and 2015.
Research Design & Methods: Using panel fixed-effects regressions with Driscoll and
Kraay standard errors, the authors investigate the role of export specialisation and
product concentration, as well as comparative advantages on the value of log exports
per capita, controlling for other important export determinants.
Findings: Estimations of the panel model bring the conclusion that specialisation in
a positive way contributes to the value of exports per capita, assessed at county
level. The robustness of the obtained results has been verified by the use of several
concentration and specialisation measures, incl. HHI, Krugman specialisation index,
weighted RCA and concentration ratio.
Implications & Recommendations: Further research is recommended to capture the
consequences of differentiation in the patterns of exports among counties in terms
of agricultural vs. industrial goods as well as the low-tech vs. high-tech products.
Similar research is recommended to be done at NUTS-2 level in order to inquire
into the rationale of smart specialisation(s).
Contribution & Value Added: The main contribution of the research is showing the
lumpiness of Poland’s exports at county level in terms of product specialisation and
concentration. The value added is depicting the positive role of specialisation for
the exports success, understood as exports per capita.
... David Ricardo (1817) stresses that countries can mutually benefit from each other even in the presence of absolute advantage over the other in the production of all the goods and services. Ciuriak et al. (2015) stress that trade is greatly supported and influenced by trade policy and negotiations. This facilitates market access, multilateral agenda and services, standards, trade, procurement and innovation in the industries and firms. ...
Uganda is one among the largest producing and exporting countries of coffee products in the world. Coffee production has heavily contributed to both domestic and foreign earnings in the country. Moreover, coffee also serves as a primary source of labour, especially for the rural smallholder farmers. Against this backdrop, this article attempts to investigate the effects of some factors on coffee production and exports in the country. Using ordinary least squares (OLS), the results show that coffee production and the world price index have a positive relationship with coffee exports in the country. On the contrary, the results show an inverse relationship between domestic coffee consumption and exports. Our results further indicate that coffee exports, domestic consumption and world price have a positive relationship with production in the country. The government of Uganda should as a matter of urgency implement the existing coffee policies and if necessary, make some reforms to improve production and promote the product on the international markets for competitiveness and maximum earnings.
Which companies gain and which companies lose from trade agreements? In contrast to a view that sees the largest companies as the main beneficiaries of trade agreements, we argue that medium-sized companies gain the most from them. Moreover, we examine whether more capital-intensive and more diversified companies benefit more than other firms. Our empirical test relies on a dataset with daily firm-level stock price data for close to 4,000 US companies over the period 2009–2016. Concretely, we assess how the shares of different types of firms reacted to the news on the (lack of) progress of the negotiations aimed at concluding the TPP and TTIP. We find support for the view that medium-sized and diversified companies win the most from trade agreements. Besides speaking to the literature on the distributional effects of trade agreements, the article contributes to recent research on the role of firms in the international political economy and the stock market consequences of political events. It also presents a novel approach to measuring progress and stagnation in international trade negotiations using computational text analysis.
Globalization aided by education moderates the market prospects to achieve economic growth. When economic, political, and social forces of globalization gain traction with the skilled invididuals, entrepreneurial results reach out. Policymakers are still searching for a context where regional policies can turn globalization to foster long-term entrepreneurship opportunities. The literature on entrepreneurial phenomena is incomplete and uncertain as to how globalization forces establish a nonlinear mechanism to promote the entrepreneurial process and does education intervenes in this relationship. This study adds on the theory for identifying how education can moderate the globalization forces on the entrepreneurial process. The results showed that quality of education moderates the economic and political globalization to boost entrepreneurship.
Most trade agreements are ratified with overwhelming support by legislators throughout the world. This lack of opposition is surprising given the strong distributional consequences of trade and the expectation of conventional political economy theory that parliamentary votes on trade policy should be closely contested between winners and losers of globalization. To analyze the driving forces behind legislators’ voting behavior while avoiding the obscuring effect of party discipline, I analyze under which circumstances legislators decide to rebel against their party’s position when voting on the ratification of trade agreements. I put forward two hypotheses: First, rebellions are more likely when the trade agreement is with a larger trading partner and when the liberalization through the agreement is more comprehensive. Second, legislators will rebel when their party’s position does not align with their constituency’s economic interests. These hypotheses are supported by a series of multinomial regression analyses based on an original dataset comprising votes of several thousand legislators from multiple countries on the ratification of trade agreements.
Globalization boosts the process of market predictions in the pursuit of economic growth. When economic, political, and social forces gain traction by promoting policies and the climate favoring globalization, entrepreneurial results reach out. Policymakers are still searching for a context within which regional policies can be structured to foster long-term entrepreneurship opportunities. The literature on entrepreneurial phenomena is incomplete and uncertain as to how globalization forces establish a nonlinear mechanism to promote the entrepreneurial process. This study provides the basic context for identifying globalization forces to create a nonlinear effect on the entrepreneurial process in order to address this problem. The results propose that policymakers strengthen the social and political dimension of globalization to increase opportunities-based entrepreneurship.
Why are highly educated people more supportive of international trade? Two competing explanations exist for this empirical finding. On the one hand, the economic interest approach suggests that the highly educated realize that trade can benefit them economically. On the other hand, the ideational perspective argues that this relationship arises because highly educated people are more cosmopolitan, and cosmopolitanism is positively related to support for trade. To contribute to this debate on the education–trade attitude nexus, we present and empirically test four hypotheses. Using data from the PEW Global Attitudes survey (2014) for 36 countries at various levels of development, we find that as expected by the economic interest approach, the effect of education on people's perceptions of the consequences of trade is conditional on respondents’ individual and subnational economic context. The results thus show that economic interest at least partly explains education's effects on public opinion towards trade. Beyond adding to this specific debate, the research note makes several broader contributions to research on trade and public opinion.
This paper examines the influence of three different forms of global economic engagement on the lobbying behavior of US businesses with regard to trade relations with China: (a) input sourcing; (b) downstream export; and (c) vertical foreign direct investment. It will be hypothesized that firms involved in all three forms of global economic activities should have incentives to lobby over China-related trade issues in order to maintain unimpeded access to sources of supply or markets and to ensure the smooth operation of the entire supply chain. Going further, drawing on the exit-voice framework developed by Albert Hirschman (1972), it will be argued that compared to firms in those industries mainly involved in input sourcing from China, American multinational corporations that have verticalized their production should have even stronger incentives to engage in lobbying activities and “voice” their policy preferences due to their greater “sunk costs” and hence the higher cost of “exit.” Statistical analysis of the China trade-related lobbying activities of US firms between 2006 and 2016 lends substantial support to these conjectures.
This paper examines the influence of growing global value chain (GVC) integration on the pattern of corporate lobbying for trade liberalization in the United States. We hypothesize that industries with a higher level of foreign content embodied in their exports should be more likely to support trade liberalization. This is because reduced tariff barriers should substantially reduce both the costs of inputs for such industries and the rents that may be obtained through protectionist policies. We test our hypotheses through an examination of the lobbying and election funding activities of the Fortune 500 companies in the U.S. between 2006 and 2012, using the debate over the Trans-Pacific Partnership to orient our analysis. Research findings, which corroborate our main hypotheses, point to the need to revisit conventional models of industry demand for trade liberalization in light of the growing integration of trade, production, and investment activities in the global economy.
This study models the technical efficiency in the Chilean agribusiness industry between 2001 and 2007 by taking into consideration the structural differences between the different subsectors meat, fruit & vegetables, dairy, milling, and bakery. We analyze firm data from the Annual National Industrial Survey (ENIA) totaling 2,940 observations using a stochastic frontier model combined with a metafrontier model. We observe dynamic developments in the subsectors meat, fruit & vegetables, and dairy, with a pronounced export-orientation. We show that especially meat and fruit & vegetables firms have experienced positive technological change, whereas dairy firms are exhibiting a slight decrease in efficiency and technical change. The milling and bakery subsectors, which mainly produce for the domestic market, show a rather constant status in efficiency and technical change. The results confirm that an in-depth analysis of subsectors is necessary to evaluate the competitiveness of the agribusiness industry in Chile.
Why does Canada lack the closeness of economic ties with China enjoyed by other developed Commonwealth countries, such as New Zealand? While these countries take similar positions toward China with regard to human rights and security-related matters, they differ markedly in terms of trade relations—New Zealand inked a free trade deal with Beijing in 2008, while such an agreement between Canada and China has remained out of reach. This article probes the source of this divergence. The answer, it is argued, lies in the sociotropic effects of political opposition groups on both the left and the right in Canada, and the absence of parallel conditions in New Zealand.
This article argues that the inclusion of provisions for the settlement of disputes in regional trade agreements enhances, rather than disrupts, the centrality of the World Trade Organization's dispute settlement system. Using a dataset that organizes exclusion clauses and special provisions for dispute settlement in regional trade agreements, the study develops a thematic typology that is used to examine the ways that disputes may be channelled between regional and multilateral dispute settlement institutions. This comparative empirical dimension offers a more accurate picture of the global contours of regionalization as they relate to the juridical aspects of trade governance, suggesting that the decentralization of dispute settlement inferred by the rapid development of regional bodies has been overstated.
The Transatlantic Trade and Investment Partnership (TTIP) negotiations aspire to create the world's most ambitious trade agreement between the world's two largest economies. The politics associated with TTIP are different from those associated with previous trade negotiations. Moreover, they diverge from the prevailing International Political Economy (IPE) account of trade policy. The politics of TTIP diverge from the conventional IPE account of trade politics in two particularly noteworthy ways. First, rather than being rivals, American and European business interests are allies, adopting common positions on what they want the agreement to look like. Second, opposition within both the USA and the EU comes not primarily from firms and workers fearing increased economic competition, but from less traditional trade actors – consumer and environmental groups and citizens – concerned about the erosion of valued regulations. I argue that the unusual politics is the product of two distinct, but related factors. The first is the extraordinary level of cross-investment between the two economies. The second concerns the unique emphasis on addressing non-tariff barriers, particularly regulatory differences, and the significance of the negotiating partner. I test the plausibility of these arguments through within-case variation and by preliminary comparison to other contemporary negotiations of ‘deep’ preferential trade agreements.
By December 31, 2015, the Association of Southeast Asian Nations (ASEAN) has committed to complete the formation of the ASEAN Economic Community (AEC), a plan that was adopted back in 2007. As countries across ASEAN seek to seize the development opportunities associated with the AEC, it is critical for policy makers to understand the perspective of firms towards economic integration and the level and nature of firm preparedness for this new political environment. This paper draws on an original survey of over 300 mostly multinational firms operating in the Philippines. Of particular note, we find widespread optimism about the effects of the AEC on firm profitability, but low levels of firm preparedness. In the last year before AEC implementation, firms' primary policy demand on the Philippines government was more information and communication. We also develop and test theory regarding variation across firm types in their level of preparedness, their optimism regarding the effects of the AEC on profitability, and their demand for more government-to-firm communication.
This article reviews the empirical evidence on firm heterogeneity in international trade. A first wave of empirical findings from microdata on plants and firms proposed challenges for existing models of international trade and inspired the development of new theories emphasizing firm heterogeneity. Subsequent empirical research has examined additional predictions of these theories and explored other dimensions of the data not originally captured by them. These other dimensions include multiproduct firms, offshoring, intrafirm trade and firm export market dynamics.
We apply insights from “new, new” trade theory to explain a puzzling decline in U.S. firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment. We propose that firms making vertical, or resource-seeking, investments abroad will be less likely to file AD petitions, and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, we argue, the increasing vertical FDI of U.S. firms makes trade disputes far less likely. We use firm level data to examine the universe of U.S. manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. We also find that persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by U.S. MNCs in the undervaluing country. Among larger U.S. MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. Our study highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.
The raise of global value chains, closely knitting together firms from many different countries, changed the nature of trade and the relevance of established models and corresponding statistical indicators. What was initially an innovation in business management became so successful that it changed not only trade economics but initiated a process that is having profound repercussions on our understanding of development and social policies. This mutation – some speak of a paradigm shift – blurs country borders, but also the traditional distinction between industrialised and developing economies. The issue prompted the G20 to identify in its 2012 Puerto-Vallarta meeting global value chains as one of the main dimension of modern global governance. The article is part of a dedicated volume (13) by World Economics and focuses on the trade and governance aspects, first revising the forces that led to the flattening of the world, then analysing the implications for trade statistics and policymaking.
2011 by [Jingbo Cui and Yongjie Ji]. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided this copyright notice appears on all such copies.
We provide theoretical and empirical evidence that policy uncertainty can significantly affect firm level investment and entry decisions in the context of international trade. When market entry costs are sunk, policy uncertainty can create a real option value of waiting to enter foreign markets until conditions improve or uncertainty is resolved. Using a dynamic, heterogeneous firms model we show that: (i) investment and entry into export markets is reduced when trade policy is uncertain, and (ii) preferential trade agreements (PTAs) are valuable to exporters even if applied trade barriers are currently low or zero. We derive a structural equation that predicts how firm entry responds to changes in applied tariffs and a theory-based measure of policy uncertainty. Our novel approach using observable trade policies allows us to estimate the impact of policy uncertainty and quantify its aggregate implications. We apply this method to Portugal's accession to the European Community in 1986 using new firm-level trade data. We find that (i) the trade policy reform accounted for a large fraction of the observed Portuguese exporting firms' entry and sales upon accession (ii) the accession removed uncertainty about future preferences and (iii) this uncertainty channel accounted for a large fraction of the predicted growth. These results have broader implications for other PTAs and our approach can be applied to analyze other sources of policy uncertainty.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
We examine the sales of French manufacturing firms in 113 destinations, including France itself. Several regularities stand out: (i) the number of French firms selling to a market, relative to French market share, increases systematically with market size; (ii) sales distributions are similar across markets of very different size and extent of French participation; (iii) average sales in France rise systematically with selling to less popular markets and to more markets. We adopt a model of firm heterogeneity and export participation which we estimate to match moments of the French data using the method of simulated moments. The results imply that over half the variation across firms in market entry can be attributed to a single dimension of underlying firm heterogeneity: efficiency. Conditional on entry, underlying efficiency accounts for much less of the variation in sales in any given market. We use our results to simulate the effects of a 10 percent counterfactual decline in bilateral trade barriers on French firms. While total French sales rise by around 23 billion (U.S.). Every lower decile experiences a drop in sales, due to selling less at home or exiting altogether.
The prevailing model of international economic regimes is strictly positivistic in its epistemological orientation and stresses the distribution of material power capabilities in its explanatory logic. It is inadequate to account for the current set of international economic regimes and for the differences between past and present regimes. The model elaborated here departs from the prevailing view in two respects, while adhering to it in a third. First, it argues that regimes comprise not simply what actors say and do, but also what they understand and find acceptable within an intersubjective framework of meaning. Second, it argues that in the economic realm such a framework of meaning cannot be deduced from the distribution of material power capabilities, but must be sought in the configuration of state-society relations that is characteristic of the regime-making states. Third, in incorporating these notions into our understanding of the formation and transformation of international economic regimes, the formulation self-consciously strives to remain at the systemic level and to avoid becoming reductionist in attributing cause and effect relations. The article can therefore argue that the prevailing view is deficient on its own terms and must be expanded and modified. Addressing the world of actual international economic regimes, the article argues that the pax Britannica and the pax Americana cannot be equated in any meaningful sense, and that the postwar regimes for money and trade live on notwithstanding premature announcements of their demise.
Micro-level data have had a profound infl uence on research in international trade over
the last ten years. In many regards, this research agenda has been very successful. New
stylized facts have been uncovered and new trade models have been developed to explain
these facts. In this paper we investigate to which extent answers to new micro-level
questions have affected answers to an old and central question in the field: How large are
the welfare gains from trade? A crude summary of our results is: So far, not much.
This chapter develops a new data set on import and export activity of U.S. firms. Firms that export had higher employment growth than nonexporters, and firms that entered the export or import market between 1993 and 2000 experienced very high employment growth rates. Firms that stopped exporting and/or importing suffered decline in employment. The greatest share of exporting and especially importing firms are found in wholesale and retail trade. The most globally engaged firms dominate U.S. trade flows and employment among trading firms. Multinationals are still heavily linked with goods production and the extent of their intra-firm trade varies substantially with the characteristics of the source or destination country. There is substantial growth in the number of firms that export, import, and trade with related parties. Trading firms are becoming increasingly more import- and export-intensive in terms of their dollar value of trade per worker.
The authors investigate a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). Firms making vertical, or resource-seeking, investments abroad are less likely to file AD petitions and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, the increasing vertical FDI of US firms makes trade disputes far less likely. Data on US manufacturing firms reveals that AD filers generally conduct no intrafirm trade with filed-against countries. Persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. The authors confirm that undervaluation is associated with more AD filings. However, high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. The study also highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.
Small international businesses are flourishing on the back of new technology, and becoming more multinational than much larger international corporations. Wandering through the airports of the world, weary travelers may well have noticed the regular HSBC ads forecasting the business trends of our changing world. Traditionally, exporting has been a complex and costly task. The libraries of business schools are well stocked with thick manuals and studies of foreign market entry, franchising, exporting and trade policies. The extra costs that exporting involves, from adaptive marketing to shipping insurance, have tended to make it an exclusive activity, reserved to a small, select clique of highly productive large corporations. Technologies such as those available to firms via the eBay platform are likely to be the sort of tools needed to help homemade lemonade brewers reach a global customer base. This is because online platforms enable individuals and firms to connect across cultural and national borders.
Originally an important but relatively obscure plurilateral instrument, the WTO Agreement on Government Procurement (GPA) is now becoming a pillar of the WTO system as a result of important developments since the Uruguay Round. This collection examines the issues andchallenges that this raises for the GPA, as well as future prospects for addressing government procurement at a multilateral level. Coverage includes issues relating to pending accessions to the GPA, particularly those of developing countries with a large state sector such asChina; the revised (provisionally agreed) GPA text of 2006, including provisions on electronic procurement and Special and Differential Treatment for Developing Countries; and procurement provisions in regional trade agreements and their significance for the multilateral system. Attention is also given to emerging issues, especially those concerning environmental, social and SME policy; competition law; and the implications of the recent economic crisis.
We use 6-digit bilateral trade data to document the effect of WTO/GATT membership on the extensive and intensive product margins of trade. We construct gravity equations for the two product margins where the specifications of these gravity equations are motivated by the model of Eaton and Kortum (2002). The data show that the puzzle of no significant impact of WTO membership on trade documented by Rose (2004) manifests itself differently at the product margins of trade. We show that the impact of the WTO is almost exclusively on the extensive product margin of trade, i.e. trade in goods that were not previously traded. In our preferred specification, WTO membership increases the extensive margin of exports by 31%. At the same time, WTO membership has a negligible or even a negative impact on the intensive margin (the volume of already-traded goods). Incidentally, we also document that standard gravity variables provide good explanatory power for bilateral trade on both margins.
How does trade liberalization affect wages? This is the first paper to consider in theory and data how the impact of final
and intermediate input tariff cuts on workers' wages varies with the global engagement of their firm. Our model predicts that
a fall in output tariffs lowers wages at import-competing firms but boosts wages at exporting firms. Similarly, a fall in
input tariffs raises wages at import-using firms relative to those at firms that only source inputs locally. Using highly
detailed Indonesian manufacturing census data for the period 1991–2000, we find considerable support for the model's predictions.
Abstract Liberalization of trade and investment in services through trade agreements has progressed less than trade in goods. We review the limited progress achieved to date in the WTO and major regional agreements on services and possible explanations why trade agreements have not been more effective at integrating the services markets of participating countries. We argue that the prospects for both services liberalization and welfare-enhancing regulatory reform in the context of trade agreements can be enhanced through mechanisms that enhance transparency, dialogue and cooperation between regulators, trade officials and stakeholders.
The commonplace tendency is to blame the difficulties of the Doha Round of multilateral trade negotiations on the World Trade Organization (WTO) itself. In contrast, I suggest in the first part of this paper that exogenous structural factors, especially changing commodity prices and trade flows, fatally undermined the round. In the second part I discount the significance of endogenous institutional factors such as the number of participants, the size of the agenda, or the Single Undertaking, although design failures, notably in the "modalities" for negotiation, did hurt. But what hurt even more was the way the WTO, in common with most multilateral organizations, has not caught up with the shifting centre of gravity in global governance. The trading system is no longer a transatlantic bargain. The regulatory issues on the 21st century trade policy agenda will inevitably be negotiated in Geneva, but only after a new trans-Pacific accommodation recognizes China’s central role.
Accountability is fundamental to democratic governance and good administration, but its multiple meanings and claimants challenge international organizations. Who is accountable implies who can be accountable, and the matters for which some process exists to hold them accountable through some effect on their behavior. The answers to those questions in the World Trade Organization (WTO) will differ depending on who is asking and on the values to be promoted, from international order, procedural fairness, prosperity and justice to sustainable development. An anatomy of accountability in the WTO finds many possible ‘accountability regimes’, illuminating the tension between vertical and horizontal accountability (domestic responsiveness and international obligation) and the challenge in choosing among horizontal accountability regimes (promise keeping by members): efforts to satisfy any one accountability claim can make achieving the others more difficult.
I provide novel evidence for the impact of trade policy uncertainty on exporters. In a dynamic, heterogeneous firms model, trade policy uncertainty will delay the entry of exporters into new markets and make them less responsive to applied tariff reductions. Policy instruments that reduce or eliminate uncertainty, such as binding trade policy commitments at the WTO, increase entry. The predictions are tested on disaggregated, product-level Australian imports with model-consistent measures of uncertainty. The estimates show that growth of exporter-product varieties would have been 7% lower between 1993 and 2001 without the binding commitments implemented after the WTO was formed in 1996. If Australia reduced all its tariffs and bindings to zero, more than half of predicted product growth is accounted by by removing uncertainty. These results illuminate and quantify an important new channel for trade creation.
Abstract In this paper, we examine how changes in tariff rates and industry‐specific real exchange rates affect the entry/exit process to export markets and productivity growth. Using the experience of the Canadian manufacturing sector over three decades, we find that firms in export markets enjoy faster productivity growth than non‐participants. The size of the growth advantage depends on whether real exchange rates are increasing or decreasing. The increase in the value of the Canadian dollar during the post‐2000 period almost completely offset the productivity growth advantages enjoyed by new exporters during this period.
We analyze subglobal action to mitigate climate change with a consideration of recent advances in the theory of international trade. Subglobal action impacts emissions in unconstrained countries (carbon leakage) through international trade channels. Consequently, estimates of the efficacy of subglobal action, tariffs on embodied carbon, and the distribution of policy costs will be sensitive to the assumed structure of international trade. While most climate-policy models rely on an Armington (1969) structure of international trade, recent empirical evidence supports a new theory suggested by Melitz (2003). We find significant quantitative and qualitative differences when we consider the Melitz trade structure. These differences are important as an alternative, and arguably more plausible, representation of how trade and border adjustments interact with climate policy.
Without transparency, trade agreements are just words on paper. Transparency as disclosure allows economic actors and trading partners to see how rules are implanted; transparency in decision-making ensures fairness and peer review. In the first section of this paper, I discuss the logic of transparency in general and the motivation for its use in the trading system. Considerable information on WTO transparency mechanisms is available in the Minutes and annual reports of the various WTO bodies, and in the Director-General’s annual overview of the trading system, but comparative analysis is not easy. In the second section, therefore, I develop a framework in which different transparency mechanisms can be compared to each other using the metaphor of three generations in the evolution of transparency in the trading system as a means of explaining how transparency works in the WTO. For sunshine to work, at least two things must happen. Information must be made available, and Members have to use it. Probing the extent to which Members comply with their notification obligations, in the third section, and their efforts to improve the notification process, allow an assessment of their commitment to being transparent. In the fourth section I consider how WTO committees are used to ensure that Members are accountable for their commitments, including to notify. Since the committees differ, I use the metaphor of the great pyramid of the legal order to compare committees to each other. Assessment of whether these mechanisms work underpins observations in the conclusion on whether more sunshine is needed, and efforts underway to improve existing mechanisms.
Without transparency, trade agreements are just words on paper. Transparency as disclosure allows economic actors and trading partners to see how rules are implanted; transparency in decision-making ensures fairness and peer review. In the first section of this paper, I discuss the logic of transparency in general and the motivation for its use in the trading system. Considerable information on WTO transparency mechanisms is available in the Minutes and annual reports of the various WTO bodies, and in the Director-General’s annual overview of the trading system, but comparative analysis is not easy. In the second section, therefore, I develop a framework in which different transparency mechanisms can be compared to each other using the metaphor of three generations in the evolution of transparency in the trading system as a means of explaining how transparency works in the WTO. For sunshine to work, at least two things must happen. Information must be made available, and Members have to use it. Probing the extent to which Members comply with their notification obligations, in the third section, and their efforts to improve the notification process, allow an assessment of their commitment to being transparent. In the fourth section I consider how WTO committees are used to ensure that Members are accountable for their commitments, including to notify. Since the committees differ, I use the metaphor of the great pyramid of the legal order to compare committees to each other. Assessment of whether these mechanisms work underpins observations in the conclusion on whether more sunshine is needed, and efforts underway to improve existing mechanisms.
This paper reviews the new approach to international trade based on firm heterogeneity in differentiated product markets. This approach explains a variety of features exhibited in disaggregated trade data, including the higher productivity of exporters relative to non-exporters, within-industry reallocations of resources following trade liberalization, and patterns of trade participation across firms and destination markets. Accounting for these empirical patterns reveals new mechanisms through which the aggregate economy is affected by trade liberalization, including endogenous increases in average industry and firm productivity.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
We analyze the degree of preference utilization in four major importing countries (Australia, Canada, EU and US) and provide evidence that preferences are more widely used than previously thought. For Australia and Canada, we have obtained a new dataset on imports by preferential regime that has so far not been publicly available. For the EU and US, we make use of more disaggregated data than previously used in the literature. We empirically test what determines utilization rates. In line with previous studies, we find that utilization increases with both the preferential margin and the volume of exports, suggesting that using preferences can be costly. However, we also find that utilization rates are often very high, even for very small preferential margins and/or very small trade flows, which contradicts numerous estimates that average compliance costs are as high as 2-6%. We extend the existing literature in relation to both data and methodological issues. In particular, we construct 'pseudo transaction-level' data that allows us to assess more precisely when available preferences are utilized. Using this methodology, we obtain a more realistic estimate of what determines utilization. Rather than constituting a percentage share of the trade value, our findings indicate that utilization costs involve an important fixed cost element. We provide estimates for such fixed costs, which appear to be in the range of USD 14 to USD 1,500.
The present paper modifies the "Protection for Sale" model of Grossman and Help- man (1994) to account for intra-industry trade and heterogeneous firms lobbying for non-tari barriers to trade. Some non-tari barriers to trade, such as technical standards, raise the fixed costs of market access for both domestic producers and foreign exporters, force the least ecient firms to exit, and increase the profits of the most ecient firms. Technical barriers to trade also shift profits across countries, but not necessarily to the country in which firms are more productive on average. They are inecient from a social welfare perspective, but may nevertheless be im- plemented in the political equilibrium if only the largest domestic firms lobby the government. The implementation of technical barriers to trade is the more likely, the less ecient the foreign competitors. Other non-tari barriers to trade, such as customs procedures, raise the fixed costs of foreign exporters only, and thus benefit all domestic firms. Yet, as they reduce variety and raise consumer prices, they are inecient from a social welfare perspective, and may not even be implemented if the largest domestic firms impose political pressure. In case they are implemented, however, the government chooses the most deterring level of customs procedures to prevent foreign firms from market entry. The paper also analyzes the case of bi- lateral trade negotiations, and it addresses the issue of endogenous lobby formation.
We study the trade policy choices of governments in an environment in which some of the trade ‡ows being taxed or subsidized involve the exchange of customized inputs, and the con- tracts governing these transactions are incomplete. We show that the second-best policies that emerge in this environment entail free trade in …nal goods but not in intermediate inputs, since import or export subsidies targeted to inputs can alleviate the international hold-up problem. We next show that the Nash equilibrium policy choices of governments do not coincide with internationally e¢ cient choices, and that the Nash policies imply an ine¢ ciently low level of intermediate input trade across countries. The reason is that in our environment trade policy choices serve a dual role: they can enhance investment by suppliers but, because of ex-post bargaining over prices, they can also be used to redistribute pro…ts across countries. The ine¢ - ciencies inherent in the Nash policy choices of governments not only result in suboptimal input subsidies, but also in positive distortions in …nal-good prices, even when countries cannot aect world (untaxed) prices in those goods. As a result, an international trade agreement that brings countries to the e¢ ciency frontier will necessarily increase trade in inputs, but it may require a reduction in …nal-goods trade. When governments are not motivated by the impact of their policies on ex-post negotiated international input prices, the resulting policy choices are e¢ cient, and hence a modi…ed terms-of-trade interpretation of the purpose of trade agreements can be oered, but only when governments maximize real national income. If governments preferences are sensitive to political economy (distributional) concerns, the purpose of a trade agreement becomes more complex, and cannot be reduced to solving a simple terms-of-trade problem.
The rising prominence of intra-industry trade and huge multinationals has transformed the way economists think about the gains from trade. In the past, we focused on gains that stemmed either from endowment differences (wheat for iron ore) or inter-industry comparative advantage (David Ricardo's classic example of cloth for port). Today, we focus on three sources of gains from trade: 1) love-of-variety gains associated with intra-industry trade; 2) allocative efficiency gains associated with shifting labor and capital out of small, less-productive firms and into large, more-productive firms; and 3) productive efficiency gains associated with trade-induced innovation. This paper reviews these three sources of gains from trade both theoretically and empirically. Our empirical evidence will be centered on the experience of Canada following its closer economic integration in 1989 with the United States--the largest example of bilateral intra-industry trade in the world--but we will also describe evidence for other countries.
This paper derives a new effect of trade liberalisation on the quality of the environment. We show that in the presence of heterogeneous firms the aggregate volume of emissions is influenced not only by the long-established scale effect, but also by a reallocation effect resulting from an increase in the relative size of more productive firms. We show how the relative importance of these effects, and hence the overall effect of trade liberalisation on the environment, is affected by the emission-intensity at the firm level: Aggregate emissions decrease when trade is liberalised if and only if firm-specific emission intensity decreases strongly with increasing firm productivity.
According to the terms-of-trade theory, negotiations over tariffs alone, coupled with an effective market access preservation rule, can bring governments to the efficiency frontier. In this paper, we show that the nature of international price determination is important for this central result of the terms-of-trade theory. While the received theory assumes that international prices are fully disciplined by aggregate market clearing conditions, we show here that support for “shallow integration is overturned, and instead a need for “deep integration is suggested ? wherein direct negotiations occur over both border and behind-the-border policies ? if international prices are determined through bargaining.
The article offers an explanation of why recent developments in trade theory have not influenced international negotiations on trade. Trade theory developed in the 1980's to allow the analysis of imperfect markets, rather than restricting analysis to assuming perfectly competitive domestic industries. The determinants of trade can therefore primarily be explained as due to economies of scale and other positive externalities in domestic industries. Economies of scale can lead countries to specialise in trade even in the absence of any differences in tastes, technologies or factor endowments. These theories have not been translated into policy because analysts are reluctant to recommend policies which advocate intervention and non-free trade; and because present policy in GATT is based on mercantalism rather than policy recommendations of economists. -N.Adger
This paper uses Chinese …rm-level data to document facts that run counter to the accumu-lated evidence about exporting …rms and provides a model that reconciles these contrasting patterns. The new facts are: (1) China's exporters are typically less productive and sell less in the domestic market than non-exporters, and (2) the distribution of export inten-sity exhibits a U-shape, with more than half of China's exporters exporting most of their output. Previous studies of …rms in more developed countries have found that exporters are more productive, sell more in the domestic market, and export only a small fraction of their output. The new facts call into question the generality of recent trade theory, which has been extremely successful in explaining the behavior of exporters in developed countries. However, I show that the economic forces described by Melitz (2003), when properly inter-preted, are exactly the ones needed to explain the observed patterns among Chinese …rms. When countries di¤er in their factor endowment, sectors that are intensive in the locally abundant factor face higher competition in the domestic market than in foreign markets. Hence domestic rather than export markets select the most e¢ cient …rms. In the Chinese data, both the productivity di¤erences between exporters and non-exporters as well as the distribution of export intensity are systematically related to the labor intensity of the …rm or its industry. This relationship is exactly what is predicted by a Melitz model augmented to allow for factor intensity to vary by industry. Lastly, I show that the model correctly predicts the e¤ects of trade liberalization in China following China's integration into the WTO in 2001.
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.
Global production sharing is determined by international cost differences and frictions related to the costs of unbundling stages spatially. The interaction between these forces depends on engineering details of the production process with two extremes being ‘snakes’ and ‘spiders’. Snakes are processes whose sequencing is dictated by engineering; spiders involve the assembly of parts in no particular order. This paper studies spatial unbundling as frictions fall, showing that outcomes are very different for snakes and spiders, even if they share some features. Both snakes and spiders have in common a property that lower frictions produce discontinuous location changes and ‘overshooting’. Parts may move against their comparative costs because of proximity benefits, and further reductions in frictions lead these parts to be ‘reshored’. Predictions for trade volumes and the number of fragmented stages are quite different in the two cases. For spiders, a part crosses borders at most twice; the value of trade increases monotonically as frictions fall, except when the assembler relocates and the direction of parts trade is reversed. For snakes the volume of trade and number of endogenously determined stages is bounded only by the fragmentation of the underlying engineering process, and lower frictions monotonically increase trade volumes.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
The collapse in trade and contraction of output that occurred during 2008-09 was comparable to, and in many countries more severe than, the Great Depression of 1930, but did not give rise to the rampant protectionism that followed the Great Crash. Theory suggests several hypotheses for why it was not in the interest of many firms to lobby for protection, including much greater macroeconomic "policy space" today, the rise of intra-industry trade (specialization in specific varieties), and the fragmentation of production across global value chains ("vertical" specialization and the associated growth of trade in intermediates). Institutions may also have played a role in limiting the extent of protectionist responses. World Trade Organization disciplines raise the cost of using trade policies for member countries and have proved to be a stable foundation for the open multilateral trading system that has been built over the last fifty years. This paper empirically examines the power of these and other theories to explain the observed pattern of trade policy responses to the 2008 crisis, using trade and protection data for seven large emerging market countries that have a history of active use of trade policy. Vertical specialization (global fragmentation) is found to be the most powerful economic factor determining trade policy responses.
We evaluate the impact of the programs delivered by the Canadian Trade Commissioner Service (TCS) on export performance by Canadian firms. We draw on a unique set of microdata created by linking three separate firm-level databases: Statistics Canada’s Exporter Register and its Business Register, which provide information on export activity and firm characteristics, and the TCS client management database maintained by Foreign Affairs and International Trade Canada, which contains details on trade promotion services provided to Canadian firms. We apply the treatment effects analytical framework to isolate the effects of public sector trade promotion. We find that TCS programs have a consistent and positive impact on Canadian exporter performance. Exporters that access TCS services export, on average, 17.9 percent more than comparable exporters that do not. Furthermore, we also find that TCS assistance benefits exporters in terms of product and market diversification.
We use 6-digit bilateral trade data to document the effect of WTO/GATT membership on the extensive and intensive product margins of trade.We construct gravity equations for the two product margins motivated by Chaney (2008). The empirical results show that standard gravity variables provide good explanatory power for bilateral trade on both margins. Importantly, we show that the impact of the WTO is concentrated almost exclusively on the extensive product margin of trade, i.e. trade in goods that were not previously traded. In our preferred specification, WTO membership increases the extensive margin of exports by 25%. At the same time, WTO membership has a negative impact on the intensive margin. Based on novel comparative statics results about how fixed and variable trade costs impact the product margins of trade, our results suggest that WTO membership works by reducing primarily the fixed rather than the variable costs of trade.
Market Structure and Foreign Trade presents a coherent theory of trade in the presence of market structures other than perfect competition. The theory it develops explains trade patterns, especially of industrial countries, and provides an integration between trade and the role of multinational enterprises. Relating current theoretical work to the main body of trade theory, Helpman and Krugman review and restate known results and also offer entirely new material on contestable markets, oligopolies, welfare, and multinational corporations, and new insights on external economies, intermediate inputs, and trade composition.
A number of recent events in the United States attest to a "globalization backlash" in opposition to continued liberalization of trade, foreign direct investment, and immigration. This backlash has been commonly characterized as reflecting the interests of small groups whose diverse agendas have very little connection, if any, to the economic consequences of policy liberalization.The authors of this book argue that this characterization is wrong. The backlash reflects widespread skepticism among US citizens about globalization, and these perceptions seem to be closely connected to the labor-market pressures that globalization may be imparting on US workers. The empirical case for the book's argument is based on three key findings. First, a wide range of public opinion surveys indicates that US citizens recognize both the costs and benefits of integration with the world economy, but they tend to weigh the costs more than the benefits. Second, these policy preferences cut most strongly across labor-market skills. Less-skilled workers are much more likely to oppose freer trade and immigration than their more-skilled counterparts. Third, this skills-preferences gap may reflect very different wage-growth levels across skill groups in the US labor market since the early 1970s. Less-skilled US workers--a group that still constitutes the majority of the US labor force--have had close to zero or even negative real wage growth and have also seen sharp declines in their wages relative to more-skilled workers.While concerns about the impact of globalization on the environment, human rights, and other issues are an important part of the politics of globalization, it is the link between policy liberalization, worker interests, and individual opinions that forms the foundation for the backlash against liberalization in the United States.
In this study, we revisit a recent study that examined the role of GATT/WTO membership on trade flows. With this aim, we re-examine Rose (2004a)’s study and extend the data until 2007. Furthermore, we alternatively estimate the role of the organization, GATT/WTO, on trade by including more control variables that are believed to influence bilateral trade such as a defense pact (military alliance), military disputes, joint democracy and policy similarity. Empirical results clearly demonstrate that GATT/WTO membership does have a significant positive effect on trade.
This paper studies the impact of a regional free trade agreement, MERCOSUR, on technology upgrading by Argentinean firms. To guide empirical work, I introduce technology choice in a model of trade with heterogeneous firms. The joint treatment of the technology and exporting choices shows that the increase in revenues produced by trade integration can induce exporters to upgrade technology. An empirical test of the model reveals that firms in industries facing higher reductions in Brazil's tariffs increase investment in technology faster. The effect of tariffs is highest in the upper-middle range of the firm-size distribution, as predicted by the model. (JEL F13, F15, O19, O24, O33)
We study a two-country, two-sector model of international trade in which one sector produces homogeneous products and the other produces differentiated products. Both sectors are subjected to search and matching frictions in the labour market and wage bargaining. As a result, some of the workers searching for jobs end up being unemployed. Countries are similar except for frictions in their labour markets, such as efficiency of matching and costs of posting vacancies, which can vary across the sectors. The differentiated-product industry has firm heterogeneity and monopolistic competition. We study the interaction of labour market rigidities and trade impediments in shaping welfare, trade flows, productivity, and unemployment. We show that both countries gain from trade. A country with relatively lower frictions in the differentiated-product industry exports differentiated products on net. A country benefits from lowering frictions in its differentiated sector's labour market, but this harms the country's trade partner. Alternatively, a simultaneous, proportional lowering of labour market frictions in the differentiated sectors of both countries benefits both of them. The opening to trade raises a country's rate of unemployment if its relative labour market frictions in the differentiated sector are low, and it reduces the rate of unemployment if its relative labour market frictions in the differentiated sector are high. Cross-country differences in rates of unemployment exhibit rich patterns. In particular, lower labour market frictions do not ensure lower unemployment, and unemployment and welfare can both rise in response to falling labour market frictions and falling trade costs. Copyright © 2010 The Review of Economic Studies Limited.