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Patterns and determinants of the horizontal and vertical intra-industry trade of regions: panel analysis for Spain & Poland
Applied Economics
Abstract
Most of the empirical studies in the literature on intra-industry trade are conducted at the country level. Countries, however, differ in terms of granularity and internal heterogeneity. In the present study we empirically identify the determinants of the overall IIT as well as its horizontal and vertical components in the trade of Spanish and Polish NUTS-2 regions with all existing trade partners over the period 2005–2014. In order to obtain unbiased results, we utilize a semi-mixed effect model, estimated with the PPML method. We estimate the models jointly for all Spanish and Polish regions and then disjointly in a comparative manner – in order to identify incongruities of reaction to the various factors investigated. These include both traditional factors and a number of unorthodox factors such as regional path dependence, quality of regional institutions, the core or peripheral status of the reporting region.
... Cuando los productos se distinguen por una calidad distinta, en este caso café gourmet vs café no-gourmet, se suele denominar diferenciación vertical de productos, en la literatura de la organización industrial (Pepall, Richards y Norman, 2014; Belleflamme y Peitz, 2010); y su comercio se denomina comercio intrasectorial vertical, en la literatura del comercio internacional (Brodzicki, Jurkiewicz, Márquez-Ramos y Stanislaw, 2020; Le Duc y Taegi, 2020; Ito y Okubo, 2012; Aturupane, Djankov y Hoekman, 1999; Greenaway, Hine y Milner, 1995). Cuando los productos se distinguen por atributos y variedades, y los consumidores poseen preferencias heterogéneas entre los productos aun cuando puedan poseer relativamente la misma calidad, en este caso, café de empaque rojo o de la marca A vs café de empaque azul o de la marca B, se denomina diferenciación horizontal de producto, en la literatura de la organización industrial (Pepall et al. 2014; Belleflamme y Peitz, 2010); y su comercio se denomina comercio intrasectorial horizontal, en la literatura del comercio internacional (Brodzicki et al., 2020; Ito y Okubo, 2012; Aturupane et al., 1999y Greenaway et al., 1995. ...
... La literatura empírica que trata de medir el comercio intrasectorial horizontal y vertical, utiliza estos dos marcos teóricos por separado, para justificar sus resultados (Brodzicki et al., 2020;Azhar y Elliott, 2006;Schott, 2004;Aturupane et al., 1999;Greenaway et al., 1995). Esto representa una limitante pues utilizan simultáneamente dos teorías que asumen diferentes tipos de competencia para explicar sus resultados empíricos, siendo que podrían estar ligados a un tipo específico de competencia. ...
... La unicidad del equilibrio se asegura debido a dos elementos. El primero es el supuesto de costos de transporte lineales, pues esto asegura que los resultados del equilibrio igualmente sean lineales como se observa en las ecuaciones (6)- (9). El segundo es el supuesto de una distribución poblacional uniforme entre los consumidores pues esto permite que la utilidad indirecta sea igualmente lineal. ...
En este documento, se propone examinar teóricamente el comercio de la calidad de productos con un marco de competencia oligopólica a la Hotelling, en lugar de un marco de competencia monopolística o competencia perfecta como es el estándar en la literatura del comercio internacional. Este marco permite identificar la calidad de los productos, al tiempo que captura simultáneamente la preferencia por la variedad y la preferencia por la calidad de los consumidores. Los resultados teóricos permiten construir dos índices que capturan la calidad a través de los precios y de las cantidades. Usando datos altamente desagregados a nivel producto, se prueban los índices y se presentan resultados sobre el comercio de la calidad, en productos y países seleccionados. Por ejemplo, México y Francia exportan calidad en el caso de los vinos, sin embargo, los indicadores muestran que los vinos de Francia poseen mayor calidad.
Abstract
This paper proposes to theoretically examine products’ quality trade with an oligopolistic competition framework a la Hotelling rather than a monopolistic competition or perfect competition framework as is standard in international trade literature. This framework makes it possible to identify the quality of products while simultaneously capturing consumers' preference for variety and quality. The theoretical results allow the construction of two indices that capture quality through prices and quantities. The indices are tested using highly disaggregated data at the product level, and results on quality trade-in selected products and countries are presented. For example, Mexico and France export quality in the case of wines; however, the indicators show that French wines have higher quality.
... The research done within the project resulted in several publications focused on such issues as gravity panel data analysis model on the role of metropolises and path dependency (Brodzicki and Umiński, 2017), distribution of exporters and the role of ownership (Nazarczuk, Umiński, & Brodzicki, 2019), the role of specialisation (Nazarczuk, Umiński, and Gawlikowska-Hueckel, 2018), patterns and determinants of Intra Industry Trade (IIT) (Brodzicki, Jurkiewicz, Márquez-Ramos, and Umiński, 2019), consequences of Brexit (Nazarczuk, Umiński, and Márquez-Ramos, 2020), as well as determinants of the regional export base (Brodzicki, Márquez-Ramos, International trade theories -they are changing (b) undoubtedly a question can be formulated how far this universalism reaches. ...
... Brodzicki and Umiński (2017) unveiled the role of metropolises and path dependency for exports of Poland's regions. Brodzicki et al. (2019) identified the patterns and determinants of IIT and its vertical and horizontal components for regions of Spain and Poland. ...
... FOEs perform the coordination role in the global value chains (Forsgren, 2008). The literature, however, does not give the simple answer on the nexus between FDI and export performance (Brodzicki, Jurkiewicz, Márquez-Ramos, and Umiński 2019). Much depends on the character of FDI (vertical vs horizontal), the motivation of investors in particular regions and regions' characteristics (proximity to big, absorptive markets, transport infrastructure, accessibility, institutional quality, metropolitan status). ...
The book provides a comprehensive approach to the assessment of the nature of exporting activity, combining well-established theoretical reasoning with empirical evidence, and also signalling important economic policy recommendations. It is suitable for a wide range of recipients, ranging from scholars and students, to policy-makers or local/regional authorities engaged in the process of designing/implementing regional policies. Regional authorities show more interest in export potential because globalisation makes the regional economies more open and vulnerable to external economic shocks. The international trade channel has become an important factor influencing the region’s economic performance, including dynamics and volatility of economic growth as well as labour market performance.
Due to economic transition and the accession to the EU, Poland’s regions have become more open than ever. For regions of both Poland and Spain (an EU country similar to Poland in terms of size and the number of administrative units), being part of the EU’s internal market with a free circulation of goods and capital – exerts competitive pressure, which can be regarded a stress test showing the regional adaptive capacity and competitiveness. Apart from the in-depth review of the regional export activity of Poland and Spain, the book also provides similar insights for Canada and Australia, in terms of their regional export performance and trade policy.
... Focusing on Poland, Brodzicki and Uminski (2018) demonstrated that metropolitan areas and historical links with foreign countries explain some heterogeneity in regional trade. Brodzicki et al. (2020) and Barbero et al. (2021) found that regional path dependence, regional institutions' quality, and regions' core-peripheral status significantly influence trade flows. ...
... Unlike alternative approaches like the log-linear model, PPML regressions offer a natural mechanism for handling zero values in the dependent variable. Various analyses of trade data used this approach, both at the regional level (Márquez-Ramos, 2016a; Brodzicki & Uminski, 2018;Olayele, 2019;Brodzicki et al., 2020;Barbero et al., 2021) and from the perspective of a single exporter (Johnston et al., 2015). Country dummies are present in all specifications. ...
While the literature typically examines cultural factors influencing international trade at the national level, their effects vary significantly across territories within countries. This study addresses this often-overlooked territorial heterogeneity, focusing on regional imports of differentiated products enjoying country-of-origin effects rooted in cultural origins and driven by specific cultural channels. Empirically, it investigates the role of Italian migrants and universities offering courses in Italian culture and language in attracting regional imports of Made in Italy products, such as Italian food and fashion, emblematic of these place-based cultural qualities. Drawing on data from an original database covering 147 importing regions outside Italy, findings reveal a positive association between the presence of Italian migrant communities and universities offering education in Italian culture and language and the regional imports of Made in Italy goods.
... The difference of endowments and GDP per capita has a relationship to the low share of IIT too. It is also consistent with the studies by Cabral (2013), Phan & Jeong (2014), Łapińska (2016), Madeira (2016), Bagchi & Bhattacharyya (2019), and Brodzicki et al. (2020). IIT is initially a trade between countries that are similar in competitiveness (Madeira, 2016). ...
... Thus, the production cost will be lower. It is also consistent with research by Jambor & Leitão (2016) and Brodzicki et al. (2020), who find that FDI and IIT are positively correlated. Sun (2001) asserts that the international division in labor and factor production mobility, such as technology and management, can happen when foreign investment is involved. ...
Many countries try to engage more in international trade to be part of global networks. Foreign investment is one of the ways to improve a country’s economies of scale. Thus, developing countries, such as Indonesia, try to attract more FDI. FDI is mainly export oriented and wants to compete globally. Intra-industry trade measures export and import in the same industry. A high degree of intra-industry trade means a country has strong integration with a partner’s country. This study examines the relationship between FDI in Indonesia’s manufacturing sector and bilateral intra-industry trade between Indonesia and Japan, China, and ASEAN-9, especially at the industry level. The method of this study is the Fixed Effect Model. The result shows that the linkage between FDI and intra-industry trade is only significant in specific industries. In the case of Indonesia and Japan, FDI in the vehicle and other transportation industry has the highest correlation with intra-industry trade. Meanwhile, in the case of Indonesia and China, FDI in the metal, except machinery, and equipment industry shows the highest association with intra-industry trade. In the case of Indonesia and ASEAN-9, the highest linkage between FDI and intra-industry trade is in the textile industry. The relationship between FDI and intra-industry trade differs across locations and industries.Keywords: foreign direct investment, manufacture, intra-industry tradeAbstrakBeberapa negara mencoba untuk lebih terlibat dalam perdagangan internasional untuk menjadi bagian dari jaringan global. Investasi asing dipercaya merupakan salah satu cara untuk meningkatkan skala ekonomi dari suatu negara. Oleh karena itu, negara berkembang seperti Indonesia mencoba untuk menarik lebih banyak penanaman modal asing (PMA). Tujuan utama PMA biasanya adalah berorientasi ekspor dan ingin bersaing di pasar global. Perdagangan intraindustri mengukur ekspor dan impor dalam satu kategori industri. Indeks perdagangan intraindustri yang mempunyai nilai tinggi berarti suatu negara memiliki integrasi yang kuat dengan negara mitra. Kajian ini mencoba menganalisis hubungan antara PMA sektor manufaktur di Indonesia dan bilateral perdagangan intraindustri antara Indonesia dengan masing-masing Jepang, China, dan ASEAN-9, khususnya pada level industri. Metode dari penelitian ini menggunakan Fixed Effect Model. Hasil penelitian menunjukkan bahwa keterkaitan antara PMA dan perdagangan intraindustri hanya signifikan pada industri tertentu. Dalam kasus Indonesia dan Jepang, PMA pada industri kendaraan bermotor dan alat transportasi lain memiliki korelasi tertinggi dengan perdagangan intraindustri. Sedangkan untuk kasus Indonesia dan China, PMA pada industri logam dasar, barang logam, bukan mesin dan peralatannya menunjukkan hubungan yang paling tinggi dengan perdagangan intraindustri. Dalam kasus Indonesia dan ASEAN-9, hubungan tertinggi antara PMA dan perdagangan intraindustri adalah pada industri tekstil. Hubungan PMA dan perdagangan intraindustri berbeda antarlokasi dan industri.Kata kunci: penanaman modal asing, manufaktur, perdagangan intraindustri
... Furthermore, the ethnic similarity between the trading INTRA-INDUSTRY TRADE BETWEEN BOSNIA AND HERZEGOVINA AND CEFTA economies 12 significantly and positively affects their mutual IIT at the 1% significance level, as assumed in the hypothesis H8. The same key determinants of IIT were recently emphasised by the results of the study conducted by Brodzicki et al. (2020). ...
The paper aims to identify patterns and country-specific determinants of
intra-industry trade (IIT) in agri-food products between Bosnia and
Herzegovina (BiH) and other CEFTA 2006 parties in the period 2008-2018. The
purpose of the paper is to contribute to filling the gap in the empirical
literature on IIT of the South East European countries, especially in regard
to non-manufacturing sectors. To investigate IIT intensity and structure the
analysis employed Grubel- Lloyd indices and GHM methodology based on
relative unit values. In order to examine the impact of various determinants
on IIT in agri-food products, a random-effects Heckman selection model was
estimated, following a sector-level approach in the analysis. The analysis
indicates a lower level of IIT than expected and a strong dominance of its
vertical type in all BiH bilateral relations within CEFTA 2006. The
empirical results also suggest that the major determinants positively
affecting IIT in agri-food products include the size of the trading
economies, the similarity in their ethnic structure, membership in the
common regional trade agreement, and common borders. By contrast, the
results indicate that IIT is negatively affected by differences between the
trading economies in terms of productivity and gross domestic product per
capita.
In this article, we tried to estimate Intra-Industry Trade among the BRICS countries. IIT calculated by employing Grubel and Lloyd IIT Index for static analysis and Thom and McDowell (1999) MIIT index for dynamic analysis. Additionally, the decomposition of IIT carried out to distinguish between Horizontal and Vertical IIT. The unit of analysis selected at one- digit and two-digit SITC Industry level for GL IIT index, Further, to conduct MIIT analysis, industry is defined at two-digit-SITC level data by aggregating four-digit SITC sub-industry level data of IIT of BRICS countries. Further, study analysed the Pre and Post-BRICS trade pattern of IIT. Therefore, this study emphasises that do emerging economies IIT among themselves? On the basis of estimated results of this study revealed that IIT occurs at higher level of aggregation. This signifies that developing countries are trading in the same Industry for love for variety and cost effectiveness. Hence, the empirical result contradicts conventional Krugman (1979, 1985) hypothesis of IIT trade takes place in developed nations (industrialist nations). This implies that BRICS countries should focus on opportunities of trade complementary of intermediates products. This will enhance cost effectiveness of product development or production. Further, this will promote innovation in the BRICS region. To achieve this, countries needs to conduct constructive trade dialogue among the BRICS countries.
With the use panel data techniques, we estimate an empirical growth model for Polish and Spanish NUTS-2 regions – two similar-in-size European economies with the inferior initial level of development and at the same time major recipients of EU structural funds. The analysis is carried out for 16 Polish voivodeships and 19 NUTS2 level municipalities, provinces and autonomous communities observed over the period 2000-2014. Within the joined group of regions, we observe a clear beta-absolute and sigma-convergence. Within countries, the evidence points to divergence. The level of regional sigma convergence is similar. Of particular interest to us is the assessment of the role of broadly defined economic openness in the process of regional economic growth. The initial analysis points to the bidirectional relationship. We then estimate a dynamic panel data model with the use of two-step GMM due to non-stationary nature of the key variables. We control for potential interactions of openness with regional human capital endowments as well as other major determinants postulated by theoretical models. The obtained results are in line with theoretical predictions.
Using spatial econometrics, we estimate the effect of externalities generated by neighbors’ exports on place-level exports, explicitly modeling the distance to those neighbors. We find there is a positive effect of neighbors’ exports on exports to the same country but less so for exporting generally. We also find that using a spatial-weights term based on the physical distance between exporters greatly outperforms a dichotomous measure based on exporters in the same region. The results are robust to alternative definitions of the spatial weight.
The purpose of the study is to present and assess international trade relations of Poland’s regions, with focus on the intensity of intra industry trade (IIT) with the EU countries. This kind of trade is treated as a measure of integration of Poland’s region’s economies with the EU market. The particular tasks addressed in the paper are: description of inspirations to deal with international trade at regional level; formulation of a concept of region as a small, open economy; assessment of intra industry trade links in static and marginal formula - at regional level for Poland’s regions. The proposed approach is a novelty in both ways: (a) studies on international trade for Poland’s regions are not so much developed; (b) intra-industry trade at regional level is a new topic that sheds light on real integration with the EU markets. The method used in the research is a standard formula of IIT as proposed by Grubell and Lloyd, weighted according to product’s shares in trade volume. Also the marginal IIT formula is used, as proposed by M. Brulhart. Calculations were done for four-digit Combined Nomenclature groups of products. As expected, intensity of IIT for regions is lower than for the whole country. There are important differences observed for Poland’s regions. As regions differ per se, also in terms of IIT one observes differences that reflect: proximity to the EU internal market, GDP per capita differences, role of foreign direct investments in region’s economies, structure of industry and exports as well as overall competitiveness. Five groups of countries have been distinguished. IIT intensity is the highest for relations with “the old“ EU member states. Also for the “new“ member states is relatively high. It corresponds to the main message of IIT theory, that predicts stronger IIT among integrated economies. DOI: http://dx.doi.org/10.5755/j01.eis.0.8.6770
Although economists have long been aware of Jensen's inequality, many econometric applications have neglected an important implication of it: under heteroskedasticity, the parameters of log-linearized models estimated by OLS lead to biased estimates of the true elasticities. We explain why this problem arises and propose an appropriate estimator. Our criticism of conventional practices and the proposed solution extend to a broad range of applications where log-linearized equations are estimated. We develop the argument using one particular illustration, the gravity equation for trade. We find significant differences between estimates obtained with the proposed estimator and those obtained with the traditional method.
The article documents five stylized facts of economic growth. (1) The "residual" (total factor productivity, tfp) rather than factor accumulation accounts for most of the income and growth differences across countries. (2) Income diverges over the long run. (3) Factor accumulation is persistent while growth is not, and the growth path of countries exhibits remarkable variation. (4) Economic activity is highly concentrated, with all factors of production flowing to the richest areas. (5) National policies are closely associated with long-run economic growth rates. These facts do not support models with diminishing returns, constant returns to scale, some fixed factor of production, or an emphasis on factor accumulation. However, empirical work does not yet decisively distinguish among the different theoretical conceptions of tfp growth. Economists should devote more effort toward modeling and quantifying tfp.
This paper contributes to the existing empirical investigation of Japan-Korea international trade by providing new evidence of intra-industry trade between Korea and Japanese sub-regions. Taking advantage of a Japanese international trade dataset disaggregated by sub-regions, we calculate the Grubel-Lloyd intra-industry trade index for 41 regions of Japan with respect to Korea for the period between 1988 and 2006. By restricting the flows of intra-industry trade to sub-regions, the Grubel-Lloyd index is more likely to capture the effect of the fragmentation of production than the traditional index, which is based on the national level. By using Japanese prefecture international trade data, it is revealed that intra-industry trade is still pervasive even when it is restricted to trade flows between prefectures and Korea. In intra-industry trade regression models, we introduce extensive and intensive margins of prefecture exports as new explanatory variables. We find that a rise in intra-industry trade is driven by the introduction of a new variety of exports, while intra-industry trade is discouraged by an increase in the trade value of products already exported.
Coulombe S. (2007) Globalization and regional disparity: a Canadian case study, Regional Studies 41, 1–17. In this paper international and interprovincial trade flows are modelled as time-varying controls of steady-state growth paths. The models use conditional-convergence, time-series–cross-sectional analysis of Canadian provincial data over the 1981–2000 sample period. International trade appears to have a significant and substantial positive level effect on relative per-capita gross domestic product in the long run. Analysis of the estimated steady-state growth paths indicates the convergence processes observed across Canadian provinces since 1981 could be accounted for by the convergence of international trade flows. These international trade flows might be viewed as fundamental determinants of steady-state growth paths.
Coulombe S. (2007) La mondialisation et les écarts régionaux: une étude de cas canadienne, Regional Studies 41, 1–17. Cet article cherche à modéliser des flux d'échanges internationaux et interrégionaux en tant que contrôles des sentiers de croissance continus qui varient sur le temps. Les modèles emploient une analyse fondée sur la convergence conditionnelle et sur les données en série temporelle et transversales pour les provinces canadiennes de 1981 jusqu'à l'an 2000. Il paraît que les échanges internationaux aient un important effet positif non-négligeable sur le PIB par tête relatif à long terme. Une analyse des sentiers de croissance continus estimés indiquent que les processus de convergence observés à travers les provinces canadiennes depuis 1981 pourraient s'expliquer par la convergence des flux d'échanges internationaux. On pourrait considérer ces flux d'échanges internationaux comme la condition préalable des sentiers de croissance continus.
Convergence régionale Convergence conditionnelle Intégration économique régionale Echanges et croissance Modèle de croissance néo-classique Données en série temporelle–données transversales
Coulombe S. (2007) Globalisierung und regionale Disparität: eine kanadische Fallstudie, Regional Studies 41, 1–17. In diesem Beitrag werden die Handelsströme zwischen verschiedenen Ländern und Provinzen als zeitlich variierende Regler von stationären Wachstumspfaden modelliert. In den Modellen werden konditionale Konvergenzanalysen sowie Zeitreihen-Querschnittsanalysen von Daten aus kanadischen Provinzen im Zeitraum von 1981 bis 2000 durchgeführt. Der internationale Handel scheint langfristig eine signifikante und wesentliche positive Ausgleichswirkung auf das relative Pro-Kopf-BIP auszuüben. Aus einer Analyse der geschätzten stationären Wachstumspfade geht hervor, dass sich die in den kanadischen Provinzen seit 1981 beobachteten Konvergenzprozesse u. U. durch die Konvergenz der internationalen Handelsströme erklären lassen. Man könnte diese internationalen Handelsströme als fundamentale Determinanten stationärer Wachstumspfade betrachten.
Regionale Konvergenz Konditionale Konvergenz Regionale Wirtschaftsintegration Handel und Wachstum Neoklassisches Wachstumsmodell Zeitreihen-Querschnittsdaten
Coulombe S. (2007) Globalización y desigualdades regionales: un ejemplo práctico de Canadá, Regional Studies 41, 1–17. En este ensayo, los flujos del comercio internacional e interprovincial se modelan en función de los controles de tiempo variable de las vías de crecimiento en estado estable. Los modelos utilizados son la convergencia condicional y los análisis transversales y temporales de los datos provinciales de Canadá durante el periodo de muestra de 1981–2000. El comercio internacional parece tener un significativo e importante efecto positivo en nivelar a largo plazo el PIB per capita relativo. Los análisis llevados a cabo con respecto a las vías estimadas de crecimiento en estado estable indican que los procesos de convergencia observados en las provincias canadienses desde 1981 podrían haber sido causadas por la convergencia de los flujos de comercio internacional. Estos flujos de comercio internacional podrían considerarse determinantes fundamentales de las vías de crecimiento en estado estable.
Convergencia regional Convergencia condicional Integración económica regional Comercio y crecimiento Modelo de crecimiento neoclásico Datos temporales con diseño transversal
This article tests whether diversity, growth, plant size, and export intensity are empirically related to manufacturing employment volatility levels across Canadian regions during the period 1976–1997. Using cross-sectional analysis, we indicate that the regions tending to be more stable are more diverse; they have lower-than-average growth rates, larger plant sizes and higher export intensity. First-difference analysis indicates that increases in diversity and export intensity are associated with decreased volatility in larger regions, but these variables have the opposite effect for smaller regions. The analysis also shows that in areas where trade has increased, ceteris paribus, plants have grown larger and diversity has decreased. The former tends to dampen volatility and the latter tends to magnify it. When these offsetting effects are taken into account, increased trade liberalisation is found to reduce volatility for large regions, but volatility increases in smaller manufacturing centres.
This paper summarizes the methodology of the Worldwide Governance Indicators (WGI) project, and related analytical issues. The WGI cover over 200 countries and territories, measuring six dimensions of governance starting in 1996: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. The aggregate indicators are based on several hundred individual underlying variables, taken from a wide variety of existing data sources. The data reflect the views on governance of survey respondents and public, private, and NGO sector experts worldwide. The WGI also explicitly report margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. Even after taking these margins of error into account, the WGI permit meaningful cross-country and over-time comparisons.
Computable General Equilibrium (CGE) models have gained continuously in popularity as an empirical tool for assessing the impact of trade liberalization on agricultural growth, poverty and income distribution. Conventional models ignore however the channels linking technical change in agriculture, trade openness and poverty. This study seeks to incorporate econometric evidence of these linkages into a CGE model to estimate the impact of alternative trade liberalization scenarios on poverty and equity. The analysis uses the Latent Class Stochastic Frontier Model (LCSFM) and the metafrontier function to investigate the influence of trade openness on agricultural technological change. The estimated productivity effects induced from higher levels of trade are combined with a general equilibrium analysis of trade liberalization to evaluate the income and prices changes. These effects are then used to infer the impact on poverty and inequality following the top-down approach. The model is applied to Tunisian data using the social accounting matrix of 2001 and the 2000 household expenditures surveys. Poverty is found to decline under agricultural and full trade liberalization and this decline is much more pronounced when the productivity effects are included.
Although economists have long been aware of Jensen's inequality, many econometric applications have neglected an important implication of it: under heteroskedasticity, the parameters of log-linearized models estimated by OLS lead to biased estimates of the true elasticities. We explain why this problem arises and propose an appropriate estimator. Our criticism of conventional practices and the proposed solution extend to a broad range of applications where log-linearized equations are estimated. We develop the argument using one particular illustration, the gravity equation for trade. We find significant differences between estimates obtained with the proposed estimator and those obtained with the traditional method. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
To quantify the implications of common currencies for trade and income, we use data for over 200 countries and dependencies. In our two-stage approach, estimates at the first stage suggest that belonging to a currency union/board triples trade with other currency union members. Moreover, there is no evidence of trade diversion. Our estimates at the second stage suggest that every 1 percent increase in a country's overall trade (relative to GDP) raises income per capita by at least one-third of a percent. We combine the two estimates to quantify the effect of common currencies on output. Our results support the hypothesis that important beneficial effects of currency unions come through the promotion of trade. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Leichenko R. and Silva J. (2004) International trade, employment, and earnings: evidence from US rural counties, Reg. Studies 38, 355-374. Rural manufacturers in advanced countries are considered highly vulnerable to competition from international imports. Yet only limited empirical attention has been paid to the effects of trade on rural economies. This paper investigates the effects of international trade on rural manufacturing economies in the US and compares the effects of trade pressures in rural versus urban areas. Our results indicate that lower export prices are associated with increased manufacturing employment and earnings in both rural and urban counties, while lower import prices are associated with reduced rural employment but increased urban employment. Greater export orientation is associated with lower employment and earnings in both rural and urban counties, while import orientation has mixed effects.
The aim of this paper is to analyse how economic integration in Europe has affected industrial geographical concentration in Spain and to explain the driving forces behind industry location. First, we construct regional specialization and geographical concentration indices for 50 Spanish provinces (NUTS III) and 30 industrial sectors in 1979, 1986 and 1992. Second, we carry out an econometric analysis of the determinants of the geographical concentration of industries. Our main conclusion is that there is no evidence of increasing specialization in Spain between 1979 and 1992, and that the most important determinant of Spain's economic geography is scale economies. Furthermore, traditional trade theory does not play a role in explaining the pattern of industrial concentration. Finally, inter-industry linkages have a negative effect on concentration, indicating that the opening up of the Spanish economy may have lessened the importance of being close to suppliers.
While unification has undoubtedly had major effects on Germany's political economy, the pattern of current policy-making preferences was established at an earlier stage, in particular, at the beginning of the 'Kohl-era' in 1982. This essentially neo-liberal pattern can be seen to have dominated the modalities chosen to guide Germany through the process of unifi cation and was mirrored in developments in other OECD countries and in particular within the EU. This book demonstrates that the three policy imperatives (neo-liberal structural reform, European monetary integration, and unification) produced a policy-mix which, together with other structural economic and demographic factors, has had disappointing results in all three areas and hampered Germany's overall economic development.
Foreign growth can induce changes in production structures across domestic regions through international trade. With a two-country model with the explicit incorporation of two regions in the home country, we show that effects of foreign growth on exports and production to be possibly asymmetric among home regions. This foreign-growth effect is especially prominent in Asia with China emerging as the largest trading country. We empirically test our theoretical hypothesis with the data set of Japanese regions. We find evidence that the growth of Asian countries leads to a change in the regional structure of exports and production in Japan. With respect to an adjacent Asian country, the growth of a foreign country exerts opposite effects on production among Japanese regions.
After decades of economic integration and EU enlargement, the economic geography of Europe has shifted, with new peripheries emerging and the core showing signs of fragmentation. This book examines the paths of the core and peripheral countries, with a focus on their diverse productive capabilities and their interdependence. Crisis in the European Monetary Union: A Core-Periphery Perspective provides a new framework for analysing the economic crisis that has shaken the Eurozone countries. Its analysis goes beyond the short-term, to study the medium and long-term relations between ‘core’ countries (particularly Germany) and Southern European ‘peripheral’ countries. The authors argue that long-term sustainability means assigning the state a key role in guiding investment, which in turn implies industrial policies geared towards diversifying, innovating and strengthening the economic structures of peripheral countries to help them thrive.
Offering a fresh angle on the European crisis, this volume will appeal to students, academics and policymakers interested in the past, present and future construction of Europe.
A gravity panel data analysis of foreign trade by regions: the role of metropolises and history. Regional Studies. The paper investigates the determinants of the intensity of foreign trade of the Polish NUTS-2 regions over 1999–2011 with an augmented panel gravity model. In an attempt to obtain unbiased results, it estimates a semi-mixed effect model with the Poisson pseudo-maximum likelihood (PPML) method. The results clearly demonstrate the robustness of the gravity model. Furthermore, path dependence within the context of regional development, due to the historical partitions of Poland, still plays a significant and robust role. Trade persistence has been confirmed. Metropolitan regions, ceteris paribus, trade more intensely, which proves their role as nodes in global trade flows.
This paper surveys the literature on the implications of trade liberalisation for intra-national economic geographies. Three results stand out. First, neither urban systems models nor new economic geography models imply a robust prediction for the impact of trade openness on spatial concentration. Whether trade promotes concentration or dispersion depends on subtle modelling choices among which it is impossible to adjudicate a priori. Second, empirical evidence mirrors the theoretical indeterminacy: a majority of cross-country studies find no significant effect of openness on urban concentration or regional inequality. Third, the available models predict that, other things equal, regions with inherently less costly access to foreign markets, such as border or port regions, stand to reap the largest gains from trade liberalisation. This prediction is confirmed by the available evidence. Whether trade liberalisation raises or lowers regional inequality therefore depends on each country’s specific geography.
When Verdoorn (1960) found that the formation of a customs union among the Benelux countries had stimulated large, two-way trade flows of similar products, and Drèze (1961) discovered the same phenomenon in the fledgling six-nation EEC, economists took note for one main reason:adjustment costs. Instead of inter-sectoral specialization according to countries’ comparative advantage, the national economies seemed to preserve their broad industrial structures and to specialize predominantly at the intra-sectoral level. A ‘smooth adjustment hypothesis’ (SAH) soon became firmly rooted in economic thinking, according to which intra-industry trade (IIT) expansion generally entails lower adjustment costs than does inter-industry trade.
The costs of shipping containerized cargo on liner vessels play a pivotal role in determining a country's integration into international trade. We examine how policy governing the liner shipping sector affects maritime transport costs and seaborne trade flows. Using a novel dataset of services trade policy information, we find that restrictions, particularly on foreign investment, significantly increase maritime transport costs. The cost-inflating effect ranges from 26% to 68%, and the resultant reduction in trade flows from 48% to 77%, depending on the level of restrictiveness. We estimate the elasticity of seaborne trade flows with respect to distance to be nearly unity, and are able to disentangle the direct effect of distance from the one that is operating indirectly through higher maritime transport costs. Since the bulk of global merchandise goods trade is seaborne, the magnitude of frictions identified in this paper and their spatial distribution have ramifications for connectivity and growth.
While unification has undoubtedly had major effects on Germany's political economy, the pattern of current policy-making preferences was established at an earlier stage, in particular, at the beginning of the 'Kohl-era' in 1982. This essentially neo-liberal pattern can be seen to have dominated the modalities chosen to guide Germany through the process of unifi cation and was mirrored in developments in other OECD countries and in particular within the EU. This book demonstrates that the three policy imperatives (neo-liberal structural reform, European monetary integration, and unification) produced a policy-mix which, together with other structural economic and demographic factors, has had disappointing results in all three areas and hampered Germany's overall economic development.
We describe the theory and practice of real GDP comparisons across countries and over time. Version 8 of the Penn World Table expands on previous versions in three respects. First, in addition to comparisons of living standards using components of real GDP on the expenditure side, we provide a measure of productive capacity, called real GDP on the output side. Second, growth rates are benchmarked to multiple years of cross-country price data so they are less sensitive to new benchmark data. Third, data on capital stocks and productivity are (re) introduced. Applications including the Balassa-Samuelson effect and development accounting are discussed.
The large volume of intra-industry trade is often cited as a critical element favoring trade theories based on increasing returns and imperfect competition over those with constant returns and perfect competition. The former provide an elegant account of intra-industry trade, while the latter, it is often argued, cannot. This paper provides an account of intra-industry trade based squarely on comparative advantage. The key is to introduce elements of Ricardian trade theory within the Heckscher-Ohlin framework. This is appropriate, as essential characteristics of intra-industry trade imply that technical differences matter. Increasing returns, in short, are not necessary for intra-industry trade.
The hypothesis of localized export spillover has been widely supported by the previous studies. Based on Chinese firm-level data of more than 47,000 firms from 2000 to 2006, this paper investigates whether export spillover is localized in China. Drawing on the idea of revealed comparative advantage, six export spillover indicators are constructed to capture both the within- and between- provinces, cities as well as industries spillover effects. The multinomial logit model estimation results show that there is no sign of localized spillover effects despite the fact that domestic firms gain from export spillovers due to geographic and industrial agglomeration effects. This is especially true for those new entrants to export markets. The finding indicates that there may be export congestions resulting from over-agglomeration of local exporters due to the rapid export expansion in China.
We develop a framework for studying trade in horizontally and vertically differentiated products. In our model, consumers with heterogeneous incomes and tastes purchase a homogeneous good and make a discrete choice of quality and variety of a differentiated product. The distribution of preferences generates a nested-logit demand structure such that the fraction of consumers who buy a higher-quality product rises with income. The model features a home-market effect that helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade and trade policy for different income groups in an economy.
The purpose of this article is to explain the strong diversification in the volume and structure of exports in Polish regions, using a set of potential determinants originating from different foreign trade theories used in country level studies. Two sets of panel models of exports are estimated for 16 regions of Poland in the years 1999–2008. Model I shows that regional export performance is positively dependent on labour productivity, share of foreign-owned companies in employment, education level of population, location in the country's border region and access to the sea, and negatively on the importance of agriculture in the region's economy and labour costs. Model II indicates that exports of agricultural and food products are positively correlated with the importance of agriculture, labour productivity in agriculture and the economy of the region as a whole, availability of employees with an appropriate level of practical skills and access to the sea, and negatively with population density and location in the country's border region. Growth of this type of export is important for improvement of living conditions in many underdeveloped regions of Poland.
One of the problems confronting the measurement of intra-industry trade at the industry level is whether and how to appropriately adjust the industry indices for the effects of overall trade imbalance. If intra-industry trade is measured at a particular level of disaggregation by the ratio of net trade to gross trade [Balassa, I966 ], then the absence of overall trade balance or matching for the range of transactions under consideration means that exports cannot equal or match imports in every industry or grouping. OveraU trade imbalance may induce bias therefore into the measurement of intra-industry trade. This bias is inevitably in a downward direction in the case of the summary index for the whole economy, because X [ Xj -- Mjl does not equal zero. At the industry level, however, overall trade imbalance may impart an upward or downward bias in the measurement of trade-overlap. Current Approaches to Imbalance Adjustment Grubel and Lloyd [x975] recognized that overall trade imbalance may influence the measurement of intra-industry at the most aggregate level. They suggested that their index may be adjusted for the impact of overall imbalance by expressing.intra-industry trade as a proportion of total trade minus the trade imbalance 1. Aquino [I978 ] accepts the principle of adjustment but is critical of Grubel and Lloyd's failure to extend the principle to the more disaggregate or "industry" level. He argues that, "one cannot possibly maintain that the overall imbalance has not an imbalancing effect on the single commodities' trade flows and then recognize that the imbalancing effect appears at a highest level of industry-aggregation" Re.u~rk: The authors are currently conducting an investigation into the extent and determinants of intra-industry trade in the UK. Financial support from the Social Science Council of the UK is gratefully acknowledged. Helpful comments on an earlier draft from an anonymous referee are also acknowledged.
In multi-level regression, using a fixed effect for each cluster leads to models that are flexible but that have poor estimation accuracy. In small area studies, for example, fixed effects models are typically over-parameterized. Regarding region as a random effect reduces the number of parameters, and hence, the flexibility, but requires crucial assumptions, such as that of independence between covariates and the random effects. A new class of semi-mixed effects models introduced here includes random and fixed effects models as extreme cases. This class of models constitutes a continuum of models, indexed by a “sliderâ€, that determines the position of the model between these two extremes. Thus, the model selected can be close to the parsimonious random effects case, but far enough away from it to filter out unwanted dependences. The methodology is used for a small area analysis of tourist expenditures in Galicia.
At the national level, trade-weighted real exchange rates and foreign incomes significantly impact exports. At the subnational level, these variables are generally insignificant in the few studies that include them. We argue that the standard use of national trade weights in the construction of subnational trade-weighted averages of exchange rates and foreign incomes is inappropriate, and we then construct these variables using state-specific trade weights. In our panel data analysis of state-level manufacturing exports, these variables enter significantly and with the expected signs. Also, their out-of-sample forecasting ability is significantly better than that of the national trade-weighted variables.
Theorizing about and empirically measuring “intraindustry trade” is pointless if “factor proportions” vary more within than among “industries.” Available data show this to be the case.
We extend the theory of the multinational enterprise and the institutional perspective of strategy by exploring subsidiary-specific advantages as a driver of subsidiary exports. We distinguish between the factors influencing whether or not subsidiaries are exporting (export propensity) and those determining the share of sales that are exported (export intensity). The former are argued to be largely associated with the relative resource position of the subsidiary and the latter primarily with the character of the host institutional environment. We provide empirical support for these arguments through a Heckman two-stage selection model estimation using a unique primary dataset of foreign owned affiliates in Hungary, Poland, India and South Africa, Egypt and Vietnam. In particular, the quality of the host institutional environment does not affect export propensity which depends on subsidiary-specific advantages in terms of geographic location, acquired resources and small scale of the parent MNE. However, export intensity is lower where the institutional environment has a higher level of economic freedom.
This paper surveys the literature on the implications of trade liberalisation for intra-national economic geographies. Three
results stand out. First, neither urban systems models nor new economic geography models imply a robust prediction for the
impact of trade openness on spatial concentration. Whether trade promotes concentration or dispersion depends on subtle modelling
choices among which it is impossible to adjudicate a priori. Second, empirical evidence mirrors the theoretical indeterminacy:
a majority of cross-country studies find no significant effect of openness on urban concentration or regional inequality.
Third, the available models predict that, other things equal, regions with inherently less costly access to foreign markets,
such as border or port regions, stand to reap the largest gains from trade liberalisation. This prediction is confirmed by
the available evidence. Whether trade liberalisation raises or lowers regional inequality therefore depends on each country’s
specific geography.
KeywordsTrade liberalisation–Regional inequality–Agglomeration–Urban systems
This paper applies the analysis of perfect monopolistic competition, developed earlier by the author, to the problem of intra-industry trade. It is shown that a high volume of intra-industry trade can be expected even between economies which are identical in all respects and thus between which no trade would be predicted on the basis of comparative advantage. It is shown that similar economies may generate more mutual trade than dissimilar ones, and that tariffs may sometimes increase intra-industry trade.
This paper investigates the presence of local export spillovers on both the extensive (the decision to start exporting) and the intensive (the export volume) margins of trade, using data on French individual export flows, at the product-level and by destination country, between 1998 and 2003. We investigate whether the individual decision to start exporting and exported volume are influenced by the presence of nearby product and/or destination specific exporters, using a gravity-type equation estimated at the firm-level. Spillovers are considered at a fine geographical level corresponding to employment areas (348 in France). We control for the new economic geography-type selection of firms into agglomerated areas, and for the local price effects of firms agglomeration. Results show evidence of the presence of export spillovers on the export decision but not on the exported volume. We interpret this as a first evidence of export spillovers acting through the fixed rather than the variable cost. Spillovers on the decision to start exporting are stronger when specific, by product and destination, and are not significant when considered on all products–all destinations. Moreover, export spillovers exhibit a spatial decay within France: the effect of other exporting firms on the export decision is stronger within employment areas and declines with distance.
We conduct a theory-based empirical study of intraindustry trade in homogeneous products. We derive an oligopolistic model of intra-industry trade, which is an extension of the segmented market model of trade, initially proposed by [Brander, J. A., 1981, Intra-industry trade in identical commodities, Journal of International Economics 11, 1–14]. The empirical implementations of the model are investigated in the context of the petrochemical industry. Our analysis employs a unique data set containing detailed product- and location-specific data on the petrochemical industries in Germany and the United States. Allowing for different empirical specifications, we find that cross-product variations in bilateral intra-industry trade of petrochemicals are well explained by the variables suggested by the theoretical model.
The paper presents a generalization of the Heckscher-Ohlin theory by admitting the existence of sectors in which there is monopolistic competition. The structure of preferences is based on Lancaster's work. It is shown without requiring homotheticity in the production of differentiated products that the intersectoral pattern of trade can be predicted from factor endowments but not from pre-trade commodity prices or factor rewards, except under special circumstances. It is also shown how the share of intra-industry trade is related to differences in income per capita and how the volume of trade depends on differences in income per capita and relative country-size Other empirical implications are also discussed.
Three hypotheses that emerge from a theoretical model are discussed. Two of them concern the behavior of the share of intraindustry trade while the third concerns the volume of trade. One is that in cross-country comparisons the larger the similarity in factor composition, the larger the share of intraindustry trade. The second is that in time series data the more similar the factor composition of a group of countries becomes over time, the larger the share of intraindustry trade within the group. The third is that changes over time in relative country size can explain the rising trade-income ratio. All three hypotheses are consistent with the data. J. Japan. Int. Econ., March 1987, 1(1), pp. 62–81. Department of Economics, Tel Aviv University, Ramat-Aviv, Tel Aviv 69978, Israel.
This paper develops a model in which the rivalry of oligopolistic firms serves as an independent cause of international trade. The model shows how such rivalry naturally gives rise to ‘dumping’ of output in foreign markets, and shows that such dumping can be ‘reciprocal’ — that is, there may be two-way trade in the same product. Reciprocal dumping is shown to be possible for a fairly general specification of firm behaviour. The welfare effects of this seemingly pointless trade are ambiguous. On the one hand, resources are wasted in the cross-handling of goods: on the other hand, increased competition reduces monopoly distortions. Surprisingly, in the case of free entry and Cournot behaviour reciprocal dumping is unambiguously beneficial.
This handbook chapter studies the theoretical micro-foundations of urban agglomeration economies. We distinguish three types of micro-foundations, based on sharing, matching, and learning mechanisms. For each of these three categories, we develop one or more core models in detail and discuss the literature in relation to those models. This allows us to give a precise characterisation of some of the main theoretical underpinnings of urban agglomeration economies, to discuss modelling issues that arise when working with these tools, and to compare different sources of agglomeration economies in terms of the aggregate urban outcomes they produce as well as in terms of their normative implications.
Many studies have found that international borders represent large barriers to trade. But how do international borders compare
to domestic border barriers? We investigate international and domestic border barriers in a unified framework. We consider
a data set of exports from individual US states to foreign countries and combine it with trade flows between and within US
states. After controlling for distance and country size, we estimate that relative to state-to-state trade, crossing an individual
US state’s domestic border appears to entail a larger trade barrier than crossing the international US border. Due to the absence of governmental impediments to trade within the
United States, this result is surprising. We interpret it as highlighting the concentration of economic activity and trade
flows at the local level. (JEL codes: F10, F15)