Greater Trade Research Articles

A Multi-Scale System of Macroeconometric Models: the Inforum Approach

The recent global crisis affected output, but the decline in international trade was even sharper, almost twice as big, so that in the literature it is referred as the Great Trade Collapse. Trade flows have transmitted the crisis through the world economy where international trade runs through much more intricate networks than in the past, involving a greater number of countries, firms, and products. All these relevant economic issues require a clear understanding of the possible positive and negative effects not only on the economy as a whole and on aggregate macroeconomic variables but especially on specific industries and commodities. This type of quantitative analysis can be pursued with several analytical tools and data. Macroeconometric models have a long-standing and remarkable tradition as a tool for analyzing the international transmission mechanism of shocks and policies and for forecasting their effects. In this paper, we present the INFORUM international linking system of models that includes a Bilateral Trade Model (BTM) and a set of multisectoral country models. The INFORUM international system of models is characterised by a detailed industry and commodity classification and the use of econometric equations for estimating the behaviour of economic variables and of bilateral import shares. Moreover, when the complete international system of models is linked through the bilateral trade model, simulation results include feedback effects from country models to all economies in the system through bilateral trade flows. Overall, this multi-scale system of models captures the heterogeneity across industries and countries and produces significant information for economic policy design.

Are Production Networks Passé in East Asia? Not Yet

Many people have a vague notion that the room for expanding international production networks is almost exhausted and that therefore international trade has slowed down since the recovery from the great trade collapse. This paper presents evidence against such a belief in the East Asian context by classifying finely disaggregated trade data based on the stages of the production process. The trade slowdown was attributed mainly to sluggishness of trade in primary goods and processed raw materials. In contrast, East Asian trade in manufactured parts and components and the assembled end-products within production networks continued to expand steadily.

The role of Regional Trade Agreements: in the Case of India

A Regional Trade Agreements is expected to increase the intra-regional trade volume and welfare of countries. We argue that a formation of Regional Trade Agreements is an endogenous process in the case of India in the model incorporating both inter- and intraindustry trade. Our Results suggest that a Regional Trade Arrangement is encouraging trade only when the partner countries are already sharing great trade volume. For India, its engagements with the Association of Southeast Asian Nations and East Asia per se are unlikely to boost trade.

Micro-Foundation Investigation of Price Manipulation in Indonesian Capital Market

ABSTRACTAn analysis of all intraday trades in the Jakarta Stock Exchange during 2003–2004 indicates that more than half of them are “manipulated” by principal stockbrokers. Consequently, they can earn between 59% and 92% more annually than intermediary stockbrokers, which depend heavily on their investment patterns as well as firm’s characteristics. Specifically, our regression results suggest that with increases in their degree of principalness (PRIN), stockbrokers with a greater trade imbalance earn more at the expense of outside investors, even though this effect diminishes as PRIN increases. Moreover, firms that suffer the most from stockbrokers’ inappropriate behavior have large market capitalization or high stock liquidity.

Exports and bank shocks: Evidence from matched firm-bank data

A growing literature aims to understand the structural change and cyclical factors that contributed to the Great Trade Collapse. This paper adds to the conversation by investigating the impact of bank distress on firms’ exports using matched firm-bank data for the UK. We use two novel measures of bank distress: the Basel III net stable funding ratio, as well as the market-based bank credit default swap spreads, which best capture bank default risk, especially during crises. Our detailed database provides the crucial firm-bank relationship information that allows us to directly test for the banking channel effect on the real economy, and to carefully account for various endogeneities and biases in estimation. We also test for the possible contagion of the Sovereign Debt Crisis from the GIIPS economies to the UK. We find that the severe bank distress generated by the recent crises immediately, negatively and significantly affects UK firms’ exports, independent of demand shocks. Not all firms were impacted equally: private firms and firms in industries more dependent on external finance were impacted the most, while publicly owned firms were less affected by their bank’s distress.

Quality and the Great Trade Collapse

We investigate theoretically and empirically the heterogeneous effects of the global financial crisis on international trade flows differentiated by quality. Our model, which identifies the effect of quality on trade that arises on the demand side, through the relationship between income and quality choice, predicts that a negative income shock disproportionately reduces the demand for higher relative to lower quality traded goods (a “flight from quality”). Using a unique dataset of firm-level wine exports for an emerging market economy, Argentina, combined with experts wine ratings as a measure of quality, we find strong evidence of a flight from quality as we show that the values, volumes, unit values, and markups of higher quality exports contracted more sharply during the crisis. Our results imply that the exports of countries producing higher quality goods are likely to collapse more severely during recessions.

The Effect of Exchange Rate Volatility on the Great Trade Collapse - Evidence from Korean Trade Flows

The Effect of Exchange Rate Volatility on the Great Trade Collapse - Evidence from Korean Trade Flows

The income elasticity of import demand: Micro evidence and an application

We construct a synthetic panel of household expenditures from the Consumer Expenditure Survey (CEX) and use the Quadratic Almost Ideal Demand System to estimate expenditure shares and income elasticities of demand that vary by good-time-income. We show that the size and distribution of income shocks drives expenditure change in a manner that varies profoundly across traded goods. Our estimates of expenditure shares and income elasticities could be useful in many applications that seek to explain changes in trade behavior from the demand side, and indicate the strong sensitivity of trade to changes in the tails of the income distribution. We explore an application involving the Great Trade Collapse. Income-induced expenditure changes are positively correlated with the cross-good pattern of import changes, generating a predicted change as much as 40% as large as the raw variation in import declines.

Mass media effects on trading activities: television broadcasting evidence from Japan

ABSTRACTThis study examines how information broadcasting through television (TV) media influences stock market activities. Consistent with the effect of TV information to attract investor attention, we find that increased information flow through TV is significantly associated with greater trading volume and larger price change. For information type, hard news from business-oriented programmes and earnings-related news strongly contributes to the attention effect, while the effect of soft news is weaker. Bid–ask spread widens for more TV information flows, suggesting that new information arrival in the market expands information asymmetry. Finally, the impact of TV is more influential for stocks with more individual shareholders than those with institutional shareholders.

Two Great Trade Collapses: The Interwar Period and Great Recession Compared

In this paper, I offer some preliminary comparisons between the trade collapses of the Great Depression and Great Recession. The commodity composition of the two trade collapses was quite similar, but the latter collapse was much sharper due to the spread of manufacturing across the globe during the intervening period. The increasing importance of manufacturing also meant that the trade collapse was more geographically balanced in the later episode. Protectionism was much more severe during the 1930s than after 2008, and in the UK case at least helped to skew the direction of trade away from multilateralism and towards Empire. This had dangerous political consequences.

Los vínculos económicos entre Callao, Arica y Valparaíso durante la Confederación Peruano- Boliviana 1836-1839

The objective is to analyze the relationship among the main ports of Valparaiso and Callao with the intermediate ports of the southern Andes during the Bolivian-Peruvian Confederation. It shows how despite the political conflicts unleashed by the war against the Confederation, the trade carried out by important foreign mercantile companies installed in Valparaiso connected the ports of Arica, Islay and Cobija, which acted as links with the great international trade. The new group of merchants created a closely linked merchant network in the region. Based on the documentation of Bolivia, Chile and Peru customs, it addresses the extent to which the competition of interests between the port of Arica and Cobija was one of the reasons for the war against the Confederation.

Trade implications of grid emission factors under climate change and the green economy: Comparative study of African and Asian continents

Trade, climate change, and the green economy are aspects that converge on the carbon footprint of organisations, products and countries. The carbon footprint is in turn linked directly to the grid emission factors (GEFs) of a country or sub-regions within that country. In an epoch where global citizens are increasingly aware of the adverse impacts of high greenhouse gas emissions leading to global warming, low carbon footprints are likely to attract greater trade opportunities. African and Asian countries have embraced the green economy to address economic development, environmental management and social equity challenges. The advent of the green economy means that trade is likely to result in the more efficient allocation of natural resources, as well as improved access to green goods, services and technologies. Through the examination and analysis of publicly available and accessible data and documents, this article seeks to compare the ‘green’ trade competitiveness of Asian and African economies as measured through carbon footprints. The results of the study show that Africa is relatively cleaner than Asia. Therefore, ceteris paribus, if GEFs are used to determine trading partners, Africa stands a better chance. The research findings can be used to make informed strategic trade decision in favour of environmental sustainability.

Economic Competitiveness and Social Policy in Open Economies

ABSTRACTWhile many studies have shown that greater trade openness affects the overall size of social spending, this study emphasizes that it also affects types of social policies that a government prioritizes. When faced with deepening trade competition, governments tend to use different policy measures to address the opportunities and challenges stemming from their economic competitiveness in the international market. Policy makers in countries with high relative labor costs are likely to privilege social insurances and income transfer. This is because as high labor costs make their workers more vulnerable in the trade competition, governments seek to protect skilled labor in order to maintain their economic advantage in advanced industries. In contrast, when relative labor costs are low, human capital investment programs are likely to be emphasized to enhance productivity and the quality of labor to capitalize the cost competitiveness of a country’s workers. The findings from empirical analyzes of 26 OECD economies from 1991 to 2012 support these arguments.

Value chains and the great recession: Evidence from Italian and German firms

Global Value Chains (GVCs) were one of the main transmission mechanisms of the 2009 great trade collapse. Our paper describes the effects of the crisis from a country-comparative perspective (Germany and Italy) and at firm level. There are two main conclusions: i) supplier firms were hit by the crisis more than final firms; ii) firms’ position in GVCs and their strategies explain part of the performance gap between Italian and German firms.

Financial Shocks, Supply-Chain Relationships, and the Great Trade Collapse

The collapse in trade relative to GDP during 2008-09 was unusually large historically and puzzling relative to the predictions of canonical two-country models. In a calibrated dynamic general equilibrium two-country model where firms must build supply chain relationships in order to sell their product, we show that a tightening of credit can cause a sizable fall in the trade-GDP ratio (44 percent of the observed value) while productivity shocks cannot. The key mechanism underlying the sharper fall in trade relative to GDP involves an endogenous reallocation of scarce resources from international to domestic supply-chains, that are acquired and maintained at lower cost.

The great trade collapse and the Spanish export miracle: Firm‐level evidence from the crisis

AbstractWe provide novel evidence on the microstructure of international trade during the 2008 financial crisis and subsequent global recession by exploring a rich firm‐level data set from Spain. The focus of our analysis is on changes at the extensive and intensive firm‐level margins of trade, as well as on performance differences (jobs, productivity and firm survival) across firms that differ in their export status. We find no adverse effects of the financial crisis on foreign market entry or exit, but a considerable increase in the export intensity of firms after the financial crisis. Moreover, we find that exporters were more resilient to the crisis than non‐exporters. Finally, while exporters showed a significantly more favourable development of total factor productivity after 2009 than non‐exporters, aggregate productivity declined substantially in a large number of industries in Spanish manufacturing. We also briefly explore two factors that might help explain the surprisingly strong export performance of Spain in the aftermath of the great trade collapse: improved aggregate competitiveness due to internal and external devaluation and a substitutive relationship between domestic and foreign sales at the firm level.

An Evaluation of the Long-term Effects of Export Promotion on Firm Performance

This study evaluates the short and long-term impact of the Spanish program to support starting exporters. It is the first study in this area that includes outcomes from a ten year period, and conducts an evaluation based on both objective indicators and subjective managers’ perceptions. The time period covered includes a full business cycle, thus enabling us to extract some conclusions as to the role of export promotion in helping firms’ endure the economic crisis. Our findings show that the program had a positive impact in participants’ export and economic performance, and that these effects were persistent. We conclude that the design of the program was key to these lasting effects. The program also helped to improve firms’ survival rate and performance during the great trade collapse. Finally, considering its direct costs and benefits, the program appears to be efficient and to pay for itself.

Trade, Globalisation and the Archaic State in Southern Africa

The earliest southern African state societies based in the middle Limpopo valley and the southern regions of the Zimbabwe plateau had extensive commercial links with eastern Africa and the continent of Asia from the late 1st millennium to the middle of the 2nd millennium of the common era (CE). These states witnessed phenomenal growth and expansion propelled by this trade. However, they also became victims of the changing patterns of the Indian Ocean trade, involving eastern Africa, the Persian Gulf, the Indian sub-continent and the Far East, and the auriferous Zimbabwean plateau hinterland and adjacent lowlands. It is argued here that while there are multiple reasons for the demise of Mapungubwe (1000–1300 CE) and Great Zimbabwe (1100–1550 CE), long-distance, regional and inter-continental trade involving precious commodities such as gold was perhaps the primary cause in triggering this. Thus the dynamics of ancient state development and decline associated with the archaic state cannot be completely dissociated from intensified interactions with societies in Asia and, later, Europe.

The great trade collapse and Indian firms

AbstractThe collapse in global trade during the 2008–09 crisis has been widely studied using the developed nation(s) data. I use firm‐level data from Indian manufacturers to show that: (a) Indian firms experience strong negative demand shocks concerning their exports to the USA and the EU, the effect being significantly higher in case of the USA. Results assert that 1% increase in the exposure towards the crisis‐affected zones (the USA and the EU combined) reduces an average Indian manufacturing firm's export earnings by 1.17%–1.36%; (b) trade in consumer non‐durables and durables are the two most affected sectors, impact being higher for the latter; (c) evidence in support of similar effects throughout the size distribution of firms, with the effect being highest for small or the most vulnerable firms; (d) drop in demand, as a result of the 2008–09 crisis, only affects the high‐exposure industries. My results are robust to IV analysis and a variety of checks.

Utilização da análise envoltória de dados (DEA) na composição de carteira de investimento diversificada e eficiente

Diante de diversos tipos de aplicações financeiras, o investidor pode ter dificuldade em qual opção escolher, diante das variações da relação retorno x risco apresentadas por cada modalidade. Especialmente no caso das ações, ativos considerados de alto risco, a composição de um portfólio diversificado possibilita que o investidor tenha maiores chances de obter boa rentabilidade, assim como redução considerável do risco do investimento. Este estudo objetiva empregar a Análise Envoltória de Dados (DEA) para compor uma carteira eficiente, sob a ótica de indicadores comumente utilizados em análises fundamentalistas. A metodologia consistiu em coleta de dados junto à bolsa de valores e demais fontes de investimento, seleção das ações eficientes e otimização da carteira resultante, usando para isto o modelo de Markowitz. Os resultados indicaram que, dos cem títulos com maior volume de negociação, apenas dez foram considerados eficientes, e a carteira formada por eles obteve desempenho superior aos dos índices Ibovespa e IBr-X100. Foi possível concluir que a diversificação de portfólio de ações é uma opção viável e satisfatória em relação aos demais tipos de investimentos disponíveis para o investidor, possibilitando assim que o mesmo tenha condições de escolher uma carteira de investimento eficiente e otimizar a relação retorno x risco.