Trade In Final Goods Research Articles

Productivity and Global Value Chains: A Tale from the Indonesian Automobile Sector

Low productivity and quality of employment have always been a big problem in Indonesia, caused by the lack and mismatch of skills in the workforce. Labor productivity (LP) describes the company’s ability to produce something. This can be determined by added value or output. Several factors influence LP, such as education, age, and training. The concept of global value chains (GVCs) has become an integral part of economic activity, and trade within global production networks has grown more rapidly than conventional trade in final goods. GVCs have both positive and negative impacts on employment opportunities. The automotive industry is categorised as one of the ten primary priority industries in the Indonesian manufacturing sector. This research analyses the impact of LP on GVC integration in the Indonesian automotive industry. The data used in this research comes from the World Input–Output Database (WIOD) and the Central Statistics Agency (BPS) from 1995 to 2014. The variables used include the number of workers, added value, real wages, and GVC, which were calculated by the author using the Inter-Country Input–Output (ICIO) approach. Using ICIO analysis, the following matrix should be constructed to determine involvement in GVCs. This research shows that LP in the Indonesian automotive industry has a positive trend, and the GVC position in the Indonesian automotive industry has a positive trend line. The domestic value chain increased from 4% to 33%. This improves the ability to produce higher value-added and intermediate export goods. LP increases the domestic value chain in the Indonesian automotive industry, leading to global value chain integration. Thus, LP goes hand in hand with integrating GVCs.

Robots, tasks, and trade

We examine the effects of robotization on North–South trade patterns, wages and welfare. The empirical analysis uses ordinary least squares and instrumental-variable regressions exploiting variation in exposure to robots across countries and sectors. Both reveal that greater robot intensity in own production leads to: (i) a rise in imports sourced from less developed countries in the same industry; and (ii) an even stronger increase in exports to those countries. To explain these findings we develop a stylized Ricardian model featuring two-stage production and trade in intermediate and final goods in which robots can take over some tasks previously performed by humans in a subset of industries. An increase in robot adoption in the North impacts trade in final and intermediate goods with the South, as well as wages and welfare.

UNDERSTANDING THE CARBON INTENSITY OF SOUTH KOREA’S EXPORTS: A MULTIPLICATIVE STRUCTURAL DECOMPOSITION ANALYSIS

Despite the large and growing role of exports in Korea’s carbon emissions, they have been largely overlooked in Korea’s carbon neutrality strategy. With this in mind, we analyze Korea’s aggregate emission intensity of exports (AEIE), an indicator of the environmental efficiency of exports, which decreased from 1.37[Formula: see text]Kt/$M to 0.74[Formula: see text]Kt/$M during 2000–2014. Using the multi-regional input-output model and two-stage multiplicative structural decomposition analysis (MSDA), we uncover drivers of changes in the AEIE. Analysis of bilateral AEIE shows that exports to developed countries had a large impact on the decline while exports to developing countries have risen in importance. MSDA shows that the carbon intensity effect contributed most to the decline but that trade in intermediate goods and trade in final goods were also important. At the sectoral level, manufacturers of basic metals, electricity, gas, steam and air conditioning supply and transportation sectors were shown to be important drivers of the decline in the AEIE. As the first study to analyze the drivers of Korea’s AEIE, this paper suggests various abatement policies to help achieve the goal of carbon neutrality by 2050.

Exchange rate expectations and exports: Firm‐level evidence from China

AbstractThe notion that the exchange rate affects exports is well understood. However, whether exporters respond to the expectations of the exchange rate is unknown. Hence, in this study, we construct a measure of exchange rate expectations based on news articles from the Factiva database. We use machine learning to identify and classify news articles about the appreciation of the renminbi (RMB, Chinese currency). Our empirical estimation shows that from 2000 to 2006, Chinese firms reduced their exports in response to a higher expectation of RMB appreciation. They switched their sales from export to domestic markets. The responses are larger in low‐productivity firms, state‐owned enterprises, processing trade, and final goods trade.

The Demand for Trade Protection over the Business Cycle

AbstractWe build measures of the demand for trade protection, and relate them to permanent productivity and transitory monetary shocks identified from U.S. data. The demand for trade protection is countercyclical conditional on productivity shocks and procyclical conditional on monetary shocks. A two‐country dynamic stochastic general equilibrium (DSGE) model with trade in intermediate and final goods, sticky prices, and incomplete financial markets is proposed, in which tariffs are determined in a repeated noncooperative policy game. The resulting trade policies are consistent with the empirical evidence about the cyclical pattern of trade protection demand.

코로나19가 최종재와 중간재 무역에 미치는 파급효과 분석

This paper investigates the impact of the Covid-19 on exports and imports. The severity of the Covid-19 is measured by the mortality rate, death cases per 1000 population and confirm cases per 1000 population. It reveals that the mortality rate is the proper proxy variable for the severity of the Covid-19. To guide effective policy responses to the Covid-19, we need to explore the impact of the Covid-19 on demand and supply. Distinguishing between trade in final goods and trade in intermediate inputs, this paper shows that high mortality is associated with the reduction in exports of final goods, intermediate goods, and imports of final goods, indicating that the Covid-19 includes aspects of both demand and supply shock.

Natural Disasters and the Reshaping of Global Value Chains

To understand the longer-term consequences of natural disasters for global value chains, this paper examines trade in the automobile and electronic sectors after the 2011 earthquake in Japan. Contrary to widespread expectations, we find that the shock did not lead to reshoring, nearshoring, or diversification across non-Japanese suppliers; and trade in intermediate products was disrupted less than trade in final goods. Imports did shift to new suppliers, especially where dependence on Japan was greater. But production relocated to developing countries rather than to other top exporters, and to larger countries. The results, showing relative inertia in intermediate goods and the dominance of economic fundamentals (cost and scale) in determining sourcing decisions, may help us understand supply chain adjustment after other natural disasters, like the COVID-19 pandemic.

Testing environmental Kuznets curve hypothesis: considering the impact of Sino-US trade on three main industries in China.

To achieve carbon neutrality and carbon reduction goals, China needs to consider industrial structure and trade. This study aims to test the validity of environmental Kuznets curve (EKC) hypothesis at the industry level in China and study the different impact of Sino-US trade in intermediate goods and trade in final goods on China's environment. To do so, we used the annual data of China's 25 sectors in 1990-2015 and classified 25 sectors into three main industries. Based on the Stochastic Impacts by Regression on Population, Affluence and Technology framework, we investigated the validity of EKC hypothesis and the driving factors of greenhouse gas (GHG) emissions. The results show that (1) EKC hypothesis is verified for the country and the tertiary industry. (2) Compared with the primary industry and the secondary industry, the economic growth of the tertiary industry brings less GHG emissions. (3) Intermediate goods exported to all sectors in the USA will increase GHG emissions in the country and the three main industries, but final goods exported to consumers in the USA will reduce GHG emissions except the tertiary industry. From our results, the EKC hypothesis is a suitable model for environmental policy in tertiary industry, but it does not apply to the primary industry and the secondary industry. Environmental policy in the primary industry and the secondary industry needs to focus on reducing energy intensity. In the case of exports to the USA, intermediate goods pollute the environment, while final improve the environment. Thus, China needs to increase controls on exports of intermediate goods with low added value and high pollution and gradually shift to the production of environmentally friendly final goods.

Global trade and GDP comovement

This paper revisits the relationship between trade and cross-country GDP correlation for 134 countries from 1970 to 2009. We introduce two notions of trade linkages: (i) direct bilateral trade index and (ii) common exposure to ”third” countries capturing the role of trade networks. Both are economically and statistically associated with GDP correlation, suggesting an indirect additional channel through which GDP fluctuations propagate through trade linkages. Moreover, high income countries become more synchronized when the content of their trade is tilted toward intermediate inputs while trade in final goods is key for lower income countries. Finally, we present evidence of an increase in the trade comovement slope over the last two decades, which may reflect the increase of the density of the international trade network.

Does trade in services improve carbon efficiency? —Analysis based on international panel data

• A combination of the slacks-based measure model under the variable return to scale assumption and the Global Malmquist–Luenberger index were used to measure carbon efficiency. • Panel data from 55 countries for 2001–2015 was used to empirically test the relationship between trade in services and carbon efficiency. • Trade in services significantly improved carbon efficiency. Specifically, an increase of 1% in total trade in services increased the carbon efficiency index by approximately 0.00194 units. • The improvement in carbon efficiency as a result of trade in services was greater in exports, and imported services had an inhibitory effect on carbon efficiency. • Following a change in national leader, the financial crisis in 2008, and the signing of the Kyoto Protocol, trade in services had a greater promotional effect on carbon efficiency. Trade in services has become an important driving force of high-quality and low-carbon growth in the global economy. Existing literature has largely focused on carbon efficiency from the perspective of trade in (final or intermediate) goods, but this study is one of the first to use data from multiple countries to investigate the theoretical and empirical impacts of trade in services on carbon efficiency. Taking into consideration the factors of market size, technological innovation and structural adjustments, this study discusses the impact of import and export trade in services on carbon efficiency. Using a carbon efficiency index calculated with the slacks-based measure model under the variable return to scale assumption in combination with the Global Malmquist–Luenberger index, panel data from 55 countries around the world from 2001 to 2015 was used to empirically test the relationship. The following results were found: trade in services significantly improved carbon efficiency; other conditions being equal, an increase of 1% in total trade in services increased the carbon efficiency index by approximately 0.00194 units; the improvement in carbon efficiency as a result of trade in services was greater in exports; and imported services had an inhibitory effect on carbon efficiency. These results are robust and remain after accounting for endogenous issues. Further tests showed that service exports had a positive effect on carbon efficiency in different countries and industries, and imported services had different effects in each direction in different countries and different industries. In addition, following a change in national leader, the financial crisis in 2008, and the signing of the Kyoto Protocol, trade in services had a greater promotional effect on carbon efficiency. This article can serve as a theoretical reference on optimizing global trade in services and improving carbon efficiency.

Effects of production fragmentation and inter-provincial trade on spatial blue water consumption and scarcity patterns in China

Freshwater resources are used to produce commodities that are traded and consumed elsewhere, which generate virtual water flows. The relation between regional blue water scarcity levels―the degree of competition over limited surface and groundwater flows―and inter-regional virtual water flows has been studied. However, the effects of production fragmentation on this relation are still not properly understood. Production fragmentation is the distribution of the production process across different regions, resulting in inter-regional trade of both intermediate and finished goods and services, which involve different virtual water networks. This study formulates a comprehensive trade disaggregation approach to elaborate the virtual water networks of three trade patterns (i.e., direct final goods trade, intermediate goods trade for the last step of production, and value chain-related trade) within China, and further analyzes the impacts of trade on provincial blue water scarcity by comparing the actual water scarcity with that under a “no-trade” scenario (NTS). In 2012, there was 128 km3 blue water virtually transferred across provinces because of inter-provincial trade. Direct final goods trade contributed the most to the virtual water trade (accounting for 47% of the total), whereas value chain-related trade induced the least (17%). Compared with the results under the NTS, we found that current trade alleviated the water scarcity in provinces under extreme water scarcity, but worsened the water scarcity of this nation from a broader scope. Our study suggests policy makers fully considering specific trade patterns and their impacts on provincial or national water consumption to cope with water scarcity in China.

Reduced ‘Border effects’, Free Trade Agreements and international trade

AbstractThis paper studies the impact of ‘border effects’ and the implementation of Free Trade Agreements (FTAs) on international trade in manufacturing goods. We take advantage of the time dimension in a panel setting to capture the rise of trade in final goods and intermediate inputs that are a distinguishing feature of Global Value Chains (GVCs). Our results suggest that reduced border effects account for the bulk of the increase in international manufacturing trade. The cost of a national border is estimated to have fallen by around 4.3% per year for trade in final goods and 2.8% for trade in intermediate inputs. Moreover, we show that it is important to control for different border effects for final goods and intermediate inputs when estimating the trade impact of FTAs in gravity equations. With this enhancement, our results suggest that FTAs increase trade in final goods by 52% after ten years, with no statistically significant difference for trade in intermediate inputs. We also find evidence that FTAs that more comprehensive FTAs like the European Union have a greater trade effect than the average FTA.

International trade and employment: Theory and evidence from Korean firms

AbstractWe extend the small country trade model with firm heterogeneity (Demidova and Rodriguez‐Clare, Journal of International Economics, 90, 2013 and 266) to incorporate offshoring (along with final goods trade). We derive the firm‐level employment implications of output and input trade and trade costs and test them using Korean firm‐level data for the period 2006–2016. A key theoretical result is that the impact of a change in offshoring cost on employment depends crucially on the net substitutability between inputs where net substitutability is the difference between the elasticities of input substitution and output substitution. Empirically, we find that a decrease in the input trade cost reduces employment and the impact is stronger, the greater the net substitutability between inputs. Our 2SLS results with firm‐level imports (in place of trade costs) are consistent with our results with trade costs.

‘New-Age’ Preferential Trade Agreements and Global Value Chains: An Empirical Analysis

This article analyses the impact of the ‘depth’ of new-age preferential trade agreements (PTAs) signed by nations on value-added trade as well as trade in final and intermediate goods carried out between them. This objective of this article goes beyond the black-boxing of a PTA through a dummy and aims to focus on the ‘depth’ of a PTA as measured by its provisions and content. For this purpose, we construct an intensive panel data set. The data set spans across 6 years (3-year intervals across 2000–2015) and is constructed on a dyadic (country pair) level for 61 countries and 110 PTAs across the world, using the Trade in Valued Added (TiVA) Database from Organisation for Economic Co-operation and Development (OECD) and Content of Deep Trade Agreements database from World Bank. Further, we construct two indices for measuring the ‘depth’ of the PTAs based on their content. Our study uses augmented gravity equation with three-way fixed effects, namely country pair, exporter time and importer time, for estimating the results. Our results indicate that the ‘depth’ of a PTA significantly affects trade in final goods, intermediate goods and value-added trade, and the impact is highest for trade in value added. We also observe that PTA with greater number of provisions has a higher impact on trade in final goods, intermediate goods as well as trade in value added.

Nominal and Effective Rates of Protection by Industry in Pakistan: A Tariff Based Analysis

The study calculates nominal and effective rates of protection and their association with major characteristics of industries—labour intensity, export orientation and revealed comparative advantage. The results indicate that nominal as well as effective rate of protection has declined between two benchmark years—1990 and 2002, but vegetable oil, motor vehicles, and a sector producing intermediate good ‘other manufacturing’ remains highly protected. Overall results reveal that manufacturing import competing sectors enjoy higher protection through trade policy—tariff while negative effective rate of protection for majority of agriculture and services sectors show their disadvantage position in the economy. The results clearly indicate government priority for manufacturing sector over agriculture and services sectors. The results also reveal that effective rate of protection is negatively associated with industrial characteristics such as labour intensity, export orientation, and revealed comparative advantage indicating that a sector needs less protection if it has comparative advantage—labour intensive and produce exportable commodity. The results of the study also indicate that trade policy in Pakistan shifts trade in favours of trade in intermediate inputs in 2002 from trade in final goods in 1990. There is a need to restructure tariff structure to remove bias against agriculture and services sectors. Agriculture where majority of unskilled labour engaged ask immediate action from government to improve the condition of poor.

Global Trade and GDP Co-Movement

We revisit the association between trade and GDP comovement for 135 countries from 1970 to 2009. Guided by a simple theory, we introduce two notions of trade linkages: (i) the usual direct bilateral trade index and (ii) new indexes of common exposure to third countries capturing the role of similarity in trade networks. Both measures are economically and statistically associated with GDP correlation, suggesting an additional channel through which GDP fluctuations propagate through trade linkages. Moreover, high income countries become more synchronized when the content of their trade is tilted toward inputs while trade in final goods is key for low income countries. Finally, we present evidence that the density of the international trade network is associated with an amplification of the association between global trade flows and bilateral GDP comovement, leading to a significant evolution of the trade comovement slope over the last two decades.

Automation, Offshoring and Employment Distribution in Western Europe

This paper investigates the effects of automation and offshoring on the dynamics of the occupational distribution of employment with a focus on Western Europe between 2000 and 2016. I use a general equilibrium model with three regions, three types of workers, ICT capital, trade in final goods and endogenous offshoring. Fed with exogenous measures of ICT-capital prices and trade costs, the model replicates key features of the data. It matches the observed dynamics of offshoring to Eastern Europe and Asian countries. It also reproduces accurately the observed polarization of the labor market: abstract and manual labor increase while routine labor falls. A counterfactual experiment reveals that automation is the main driver of polarization. Since it is also the only factor that drives individuals to become abstract (highskill) workers, it is welfare enhancing. The effects of falling trade costs on labor polarization are smaller, but imply welfare gains.

The Gravity of Intermediate Goods

One of the puzzles of the gravity literature is the persistent effect of distance on trade flows, despite the dramatic fall in trade costs during the last few decades (Disdier and Head in Rev Econ Stat 90(1):37–48, 2008). A possible reason for the “distance puzzle” is that trade in intermediate goods—which has risen dramatically during this period due to the emergence of global value chains—may be more sensitive to distance than trade in final goods. Using a dataset of bilateral import flows that covers 5000 products and more than 200 countries over the 1998–2011 period, we show that intermediate goods are indeed more sensitive to distance than are final goods and that differentiated inputs exhibit the highest distance elasticity. The results are robust to including different sets of controls, and using different samples and econometric methodologies. They suggest that sourcing inputs from nearby countries helps final good producers to coordinate with their suppliers, monitor their production, and ensure the timely delivery of inputs that need to be tailored to their needs.

Carbon emission intensity embodied in trade and its driving factors from the perspective of global value chain.

As a global problem, climate warming has received widespread attention recently. With trade development and labor division deepening, there exist large differences in carbon emission intensity (CEI) embodied in different trade patterns. Assessing environmental costs of different trade patterns is the core issue for policy makers. We decompose the overall CEI embodied in trade into CEI embodied in final goods trade, domestic trade, traditional intermediate trade, and global value chain trade. Using global multi-region input-output table provided by the WIOD database, we calculate the CEI embodied in different trade patterns during 1995-2014. Further, we analyze the influencing factors of CEI embodied in different trade patterns. We find that CEI embodied in domestic trade is lower than that of international trade. All kinds of embodied CEI in developing countries are higher than that in developed countries. Furthermore, the driving factors of the overall embodied CEI, including domestic trade and international trade, are population, PGDP, energy intensity, and trade. The expansion of industrialization can effectively reduce the CEI embodied in trade of developing countries. The increase of PGDP and industrialization can effectively reduce the CEI embodied in trade related to global value chain and traditional intermediate trade, while only the increase of PGDP can effectively reduce the CEI embodied in domestic trade and final goods trade. Population can reduce the embodied CEI in trade related to global value chain and traditional intermediate trade of developed countries. Economic development can almost promote the reduction of the CEI embodied in all trade patterns. Although industrialization has insignificant impact on the CEI embodied in final goods trade of the developed countries, it can reduce such CEI of developing countries.

Production networks in Europe: A natural experiment of the European Union enlargement to the east

AbstractThis paper focuses on the 2004 enlargement of the European Union to the East and treats it as a natural experiment to investigate two issues: first, whether there has been a trade creation effect in final and intermediate goods and second, to what extent this effect has been more pronounced for final or for intermediate goods. Using difference‐in‐differences analysis, we find that the effect of the 2004 EU enlargement has been positive for both intermediate and final goods trade, and it is in general greater for final goods. Using a generalized gravity model of trade that controls for the multilateral resistance and bilateral time‐invariant factors, we estimate an increase in bilateral trade of 28% for final goods and 24% for intermediates. However, the effects are heterogeneous by sub‐sector and indicate that the main trade gains were for non‐durable consumer goods and food and beverages primary and processed products.