Detailed Trade Research Articles

Study on the Implementation Pathways and Key Impacts of RPS Target in China using a Dynamic Game-Theoretical Equilibrium Power Market Model

China's 2020 Renewable Portfolio Standards (RPS) target has been published by the government in early 2016. In the present study, in order to find its implementation pathways and estimate the key impacts of PRS target out to 2030, a multi-region power market model is proposed to investigate different RPS policy scenarios. Results show that RPS policy can promote the development of renewable energy efficiently, and Renewable Energy Certification (REC) trade can reduce the cost of electricity generated from renewable energy. However, a national wide free REC trade tends to result in a dilemma that renewable energy will be developed centralizedly in regions where the renewable resource is plenty. Therefore, detailed REC trade regulations need to be developed from more comprehensive viewpoints when adopting RPS policy.

Foreign Trade Policy of India: Recent Trends

Quantitative and detailed trade policy information and analysis are more necessary now than they have ever been. Questions have been asked about whether the gains from trade exceed the costs of trade. Concerns regarding the distributional consequences of trade reforms have also been expressed. Good policy needs to be backed by good analysis. There needs to be a rethinking of India’s foreign trade policy both in theory and in practice so as to make it more relevant and rewarding. Visibly India now focuses on exports as a thrust area, pursuing customers aboard. Make in India is the new (wake-up) call. What is in the upcoming foreign trade policy of India? This paper discusses the paradigm shifts in India’s foreign trade policy.

Are AIS-based trade volume estimates reliable? The case of crude oil exports

ABSTRACTMost global trade statistics in the public domain refer to official customs data, which are not generally available on a micro (individual cargo) level. With the increasing availability and completeness of ship positioning data from the global Automated Identification System (AIS), it is possible to derive more timely and detailed trade statistics for homogeneous commodity groups. The objective of this article is twofold: (1) to compare the accuracy of AIS-derived trade statistics to official customs data in the crude oil market and (2) to add a breakdown of trade by vessel size over time. We find that while AIS-derived data for seaborne crude exports show good alignment with official export numbers in aggregate, there are substantial temporal and geographical differences across countries and time due to the use of pipelines and transshipment in parts of the supply chain. We highlight the challenges in properly structuring and aggregating micro-level cargo data. Our findings are important for the proper derivation of shipping demand from trade data.

Offshoring and Wage Inequality: Theory and Evidence from China

We present a global production sharing model that integrates the organizational choices of offshoring into the determination of relative wages in developing countries. The model shows that offshoring through foreign direct investment contributes more prominently than arm's length outsourcing to the demand for skill in the South, thereby increasing the relative wage of skilled workers. We incorporate these theoretical results into an augmented Mincer earnings function and test the model based on a natural experiment in which China lifted its restrictions on foreign ownership for multinational companies upon its accession to the World Trade Organization in 2001. Empirical findings based on detailed Urban Household Surveys and trade data from Chinese customs provide support to our proposed theory, thus shedding light on the changes in firm ownership structure, the skill upgrading in exports, and the evolution of wage inequality from 1992 to 2008 in China's manufacturing sector.

Offshoring and Wage Inequality: Theory and Evidence from China

We present a global production sharing model that integrates the organizational choices of offshoring into the determination of relative wages in developing countries. The model shows that offshoring through foreign direct investment contributes more prominently than arm’s length outsourcing to the demand for skill in the South, thereby increasing the relative wage of skilled workers. We incorporate these theoretical results into an augmented Mincer earnings function and test the model based on a natural experiment in which China lifted its restrictions on foreign ownership for multinational companies upon its accession to the World Trade Organization in 2001. Empirical findings based on detailed Urban Household Surveys and trade data from Chinese customs provide support to our proposed theory, thus shedding light on the changes in firm ownership structure, the skill upgrading in exports, and the evolution of wage inequality from 1992 to 2008 in China’s manufacturing sector.

Value Added in Motion: Determinants of Value Added Location within the EU

In this paper we approach the determinants of value added location across European countries, from the recent developments to the 2035 horizon. In the first part of the paper, using detailed trade data, we show how competitiveness, demand and export composition have shaped the market shares of European countries, hence the location of production in Europe. Variance and covariance analysis point to the specificity of two countries: the overall market share development seems to be significantly affected by aggregate demand conditions in Germany and Italy. We then turn to trade in value added and observe that bigger countries tend to report a higher share of domestic value added because they can count on more efficient national value chains or a higher diversity of goods upstream. Interestingly, such evidence does not apply to Germany, or Poland, which exhibit a more dynamic insertion in international value chains. In the second part of the paper, we present the main prospects for the allocation of labour (i.e. migration), value added and the macro-economic effects of energy prices across European countries up to year 2035. The projections presented in the paper aim to summarize the main results obtained by other researchers within the Value Added in Motion (VAM) project.

Modelling the global maritime container network

Travel demand modelling has a long history going back to 50s when the conventional four-step modelling structure was introduced and developed for Chicago and Detroit, USA. However, the first travel demand models for freight movements were not developed until 40 years after the first model for passenger cars. Freight models are yet limited to studies looking at goods movements by truck and rail. This paper explores the effectiveness of the conventional travel demand modelling techniques for maritime container movements. Two approaches for modelling the movement of trade in the global maritime container network are discussed. The conventional methods of trip generation and distribution are applied in a sequential model, and compared against an alternative joint model methodology. Results show that the sequential methodology achieves high accuracy, while the joint methodology reveals more detailed trade relationships. Significant relationships are revealed, such as the varying influence of airports, the negative impact of coastline length and the impact of being an island, on containerised trade volumes. The findings of this paper provide a basis for modelling the container network from a transportation discipline viewpoint.

Anti-Dumping Duty Circumvention through Trade Re-Routing: Evidence from Chinese Exporters

We study the evasion of U.S. anti-dumping duties by Chinese exporters through trade rerouting via third countries or regions. Using detailed monthly trade data reported by China and the U.S. Customs during the period of 2002–2006, we find that U.S. anti-dumping actions against China lead to a stronger positive correlation between U.S. imports from third countries and Chinese exports to the same third countries. Such an effect is more pronounced for the products subject to anti-dumping duties (treatment groups) than similar products not subject to these duties (control groups), which is consistent with trade re-routing. We show further that the positive correlation increases with some product or third-country characteristics that are conducive to duty evasion.

International trade and determinants of price differentials of insulin medicine.

Empirical studies on pharmaceutical pricing across countries have found evidence that prices vary according to per capita income. These studies are typically based on survey data from a subset of countries and cover only one year. In this paper, we study the international trade and price of insulin by using detailed trade data for 186 importing countries from 1995 to 2013. With almost 12,000 observations, our study constitutes the largest comparative study on pharmaceutical pricing conducted so far. The large dataset allows us to uncover new determinants of price differentials. Our analysis shows that the international trade of insulin increased substantially over this time period, clearly outpacing the increasing prevalence of diabetes. Using the unit values of imports, we also study the determinants of price differentials between countries. Running various panel regressions, we find that the differences in prices across countries can be explained by the following factors: First, corroborating earlier studies, we find that per capita GDP is positively correlated with the unit price of insulin. Second, the price of insulin drugs originating from Organisation for Economic Co-operation and Development countries tends to be substantially higher than for those imported from developing countries. Third, more intense competition among suppliers leads to lower insulin prices. Fourth, higher out-of-pocket payments for health care are associated with higher prices. Finally, higher volumes and tariffs seem to result in lower unit prices.

A new consumption-based accounting model for greenhouse gases from 1948 to 2012

Greenhouse gas emissions embodied in international trade have grown rapidly as globalization has progressed and potentially threaten the efficacy of unilateral climate treaties such as the Kyoto Protocol. Consumption-based methods have been put forward as a way of overcoming this issue and help design future climate policies. We improve the Long-term Consumption-based Accounting (LCBA) model, with transfer carbon data from 1948 to 2012 by introducing country-specific import intensities and detailed bilateral trade data from UNcomtrade. Comparisons of our new “LCBA2″ model with existing 4 studies show similar consumption based emission patterns both in trend and magnitude, and significant emission changes in many European countries. The results independently confirm previous findings on the efficacy of the Kyoto Protocol. The results indicate transferred emissions have contributed an historic 36 Gt CO2 of cumulative emissions, have grown rapidly during the past 30 years (up to 8% of total emissions) and are likely to become increasingly influential in the near future as the global economy recovers. We also use the improved model to study other gases (CH4, N2O and SO2) embodied in trade, and results indicate similar transfer patterns as CO2 with comparable or even moderately larger magnitudes. Across-method result differences between LCBA2 with 3 other models are analyzed based on using common input datasets. Large emitters show moderate biases (within 10%) and about 75% of countries have differences within 25%, independent of input dataset. The LCBA2 model provides useful estimates of transferred emissions in both across-country and long-term historical contexts.

Imported Intermediate Inputs and Firms’ Productivity Growth: Evidence from the Food Industry

AbstractImported goods play a central role in determining the gains from trade. Using detailed trade and firm‐level data for Italy and France, we investigate the relationship between trade integration, imported intermediate inputs and firm performance in the food industry. Our main findings show that an increase in import competition spurs firm‐level productivity growth. Furthermore, the productivity growth effect attributable to imported intermediate inputs is significantly stronger than the effect due to imported final products. In addition, we find that new imported inputs are of particular importance, especially for Italian food firms, though less so for the French firms. Finally, the productivity growth effect of trade integration tends to be asymmetric across firms: more productive firms gain more from trade integration. These stylised facts have interesting policy implications.

The Impact of FTA on Extensive and Intensive Margins: The Case of Japan-Mexico FTA

This study examines the impacts of Japan-Mexico FTA (JMXFTA) on Japanese exports to Mexico. The authors construct a theoretical trade model of heterogeneous firms based on the Melitz-Chaney model, and derive the theoretical relationship of the impacts of tariff changes on extensive and intensive trade margins. Applying this model, the authors estimate the impacts of JMXFTA on product-level extensive and intensive margins of Japan’s exports to Mexico by using the most detailed commodity trade data. The results show that the tariff reduction due to JMXFTA increases the intensive margin while no clear evidence is found regarding the effect on extensive margin. This indicates that in the short-run, the JMXFTA exerted more favorable effect on the existing exporters than on new export market entrants.

Importing, exporting, and firm-level employment volatility

In this paper, we use detailed trade and transactions data for the U.S. manufacturing sector to document a new set of stylized facts on the theoretically ambiguous relationship between the volatility of employment growth and the trade exposure of a firm. We find that, on average, firms that export are less volatile than non-traders, while importers are more volatile. The substantial variation we document across trading firms, in terms of the duration of time and the intensity with which they trade, the number and type of products they trade, and in terms of the number and characteristics of their trading partners, plays an integral role in explaining the robust association between trading and employment volatility. For trading firms, the frequency of trade is negatively associated with employment volatility. Importers with a higher share of imported inputs (especially manufactured imports) and those that source from more countries and from countries with lower per-capita income experience higher levels of volatility. A higher share of exports, fewer number of export destinations and, export destinations that are further away, and with lower average incomes are associated with higher levels of volatility for exporters.

Institutions and diversification: Related versus unrelated diversification in a varieties of capitalism framework

The varieties of capitalism literature has drawn little attention to industrial renewal and diversification, while the related diversification literature has neglected the institutional dimension of industrial change. Bringing together both literatures, the paper proposes that institutions have an impact on the direction of the diversification process, in particular on whether countries gain a comparative advantage in new sectors that are close or far from what is already part of their existing industrial structure. We investigate the diversification process in 23 developed countries by means of detailed product trade data in the period 1995–2010. Our results show that relatedness is a stronger driver of diversification into new products in coordinated market economies, while liberal market economies show a higher probability to move in more unrelated industries: their overarching institutional framework gives countries more freedom to make a jump in their industrial evolution. In particular, we found that the role of relatedness as driver of diversification into new sectors is stronger in the presence of institutions that focus more on ‘non-market’ coordination in the domains of labor relations, corporate governance relations, product market relations, and inter-firm relations.

Effect of Trade Data Aggregation on International Commodity Mode Choice

Different widely accepted principles are used to determine the transport mode in which particular commodity is to be carried at the strategic planning level. One such rule is the commodity value-weight ratio. Discrete choice model is being employed in this paper using available macroscopic commodity trade information. The selection of appropriate data aggregation level for analysis is studied and its corresponding impacts are presented. By examining international commodity flows between countries, the modal split between air and sea transport are compared. After investigating four separate international trade routes and three trade data classification levels, it was found that aggregated trade classification data yields comparable results to detailed trade classification data. With respect to the Harmonized Commodity Description and Coding System, the authors analyses showed that for the purpose of mode choice studies at the planning level, it may be more efficient to develop models using HS two-digit commodity trade data.

Worth Its Weight in Gold: Product Weight, International Shipping, and Patterns of Trade

Trade theory relies heavily on the classic iceberg trade cost assumption, but empirical studies have generally rejected it. These studies, however, overlook variations in product weight. Utilizing detailed trade data, I show that unit weight varies widely even within narrowly defined categories, and increases systematically with unit value. I develop and estimate a model of international transportation that accommodates these patterns. Two remarkable results emerge: First, I find strong empirical support for the iceberg assumption. Specifically, a 10% increase in the price of an item increases the shipping cost by 9.5%. More than 80% of this effect is driven by product-weight. Second, even when facing iceberg (ad-valorem) shipping costs, countries tend to export heavier and higher-priced items to faraway locations. This pattern cannot be explained with the classic Alchian-Allen conjecture. I show that, instead, it is driven by specialization across markups.

Domestic content in China’s exports and its distribution by firm ownership

Processing trade and foreign-invested enterprises (FIEs) account for a large share of total Chinese exports. In producing exports, they also use imported inputs disproportionately, which complicates the measurement of domestic content embedded in exports and the distribution of income generated from exports. In this paper, we extend the method developed by Koopman et al. (2012) to further distinguish between Chinese exports by FIEs and Chinese-owned enterprises (COEs), in addition to processing and normal exports. We propose an accounting framework and a detailed estimation procedure that separately account for the production and trade activities of FIEs and COEs. First, we decompose gross exports into domestic and foreign content by firm types. Then, we estimate factor ownership by firm types based on enterprise surveys. Finally, we compute the distribution of domestic content by factor ownership. Empirical estimation is based on China’s 2007 benchmark input–output tables, supplemented by detailed trade and production statistics. Firm heterogeneity within each industry is identified by linking the NBS enterprises survey and the Customs’ firm-level trade data. The empirical results from 2007 indicate the following: (1) domestic content accounted for around 59% of total exports; (2) FIEs operating in China created nearly 45% of the domestic content in Chinese exports, whereas processing COEs only contributed by less than 5%; (3) in terms of income distribution, about 52.6% of the value of Chinese exports was captured by foreign factor owners.

Capabilities' substitutability and the “S” curve of export diversity

Product diversity, which is highly important in economic systems, has been highlighted by recent studies on international trade. We found an empirical pattern, designated as “S-shaped curve”, that models the relationship between economic size (logarithmic GDP) and export diversity (the number of varieties of export products) on the detailed international trade data. As the economic size of a country begins to increase, its export diversity initially increases in an exponential manner, but overtime, this diversity growth slows and eventually reaches an upper limit. The interdependence between size and diversity takes the shape of an S-shaped curve that can be fitted by a logistic equation. To explain this phenomenon, we introduce a parameter called “substitutability” into the list of capabilities or factors of products in the tri-partite network model (i.e., the country-capability-product model) of Hidalgo et al. As we observe, when the substitutability is zero, the model returns to Hidalgo's original model but failed to reproduce the S-shaped curve. However, in a plot of data, the data increasingly resembles an S-shaped curve as the substitutability expands. Therefore, the diversity ceiling effect can be explained by the substitutability of different capabilities.

Quantifying Export Flows of Used Electronics: Advanced Methods to Resolve Used Goods within Trade Data

There is limited convincing quantitative data on the export of used electronics from the United States (U.S.). Thus, we advance a methodology to quantify the export flows of whole units of used electronics from the U.S. using detailed export trade data, and demonstrate the methodology using laptops. Since used electronics are not explicitly identified in export trade data, we hypothesize that exports with a low unit value below a used-new threshold specific to a destination world region are used. The importance of using the most disaggregated trade data set available when resolving used and new goods is illustrated. Two detailed U.S. export trade data sets were combined to arrive at quantities and unit values for each port, mode of transport, month, trade partner country, and trade code. We add rigor to the determination of the used-new threshold by utilizing both the Neighborhood valley-emphasis method (NVEM) and published sales prices. This analysis found that 748 to 1199 thousand units of used laptops were exported from the U.S. in 2010, of which 78-81% are destined for non-OECD countries. Asia was found to be the largest destination of used laptop exports across all used-new threshold methods. Latin American and the Caribbean was the second largest recipient of these exports. North America and Europe also received used laptops from the U.S. Only a small fraction of used laptops was exported to Africa. However, these quantities are lower bound estimates because not all shipments of used laptops may be shipped using the proper laptop trade code. Still, this approach has the potential to give insight into the quantity and destinations of the exports if applied to all used electronics product types across a series of years.

Manufacturing Paradoxes: Foreign Ownership, Governance, and Value Chains in China’s Light Industries

Utilizing Chinese industrial data and detailed transactional trade data, this paper finds two paradoxes. First, the distribution of FDI across value chains in light industries is the opposite of many extant explanations. Second, China’s dominance as an exporter is belied by the weaknesses of its domestic firms within the governance of value chains, with important implications for firm upgrading. By analyzing millions of US Customs Bureau trade transactions, the paradoxes are resolved by examining intermediary contractors in East Asian value chains. Even 30 years after reforms began and in the technologically simplest industries, Chinese firms continue to struggle to break through substantial ‘contractual’ barriers to entry.