Intensive Margin Of Trade Research Articles

Fly the unfriendly skies: The role of transport costs in gravity models of trade

We exploit exogenous shocks to flight distances over time to estimate the distance effect in airborne trade within panel regressions. We find a negative distance effect, which we interpret as evidence of a link between transportation costs and airborne trade. Notably, this relationship is driven almost entirely by changes at the extensive margin. Specifically, trade in HS 6 product categories with intermittent trading histories becomes dormant when flight distances increase. Conversely, the intensive margin of trade remains largely unaffected.

Exports, productivity and capital intensity: Evidence for Brazilian firms

Engaging in export activities is a key factor influencing firm performance. This paper explores the export-productivity and export-capital intensity relationship using firm-level data from the Brazilian manufacturing industry over the period 2007–2014. The empirical strategy combines Propensity Score Matching (PSM) and Differences in Differences (DD) methods and explores the fact that firms enter the external market at different moments, generating a variation in the period and permanence in international trade. We find static and dynamic effects on labor productivity, total factor productivity, and capital intensity. Firms that start exports experience an average productivity growth of about 5% and a 2% decrease in capital intensity compared to non-exporting firms. The permanence in the activity magnifies these impacts. After three periods, the growth (reduction) in productivity (capital intensity) is around 10.5% (4.7%). We identify heterogeneous effects, leading to variations in magnitude across dimensions such as technological intensity, size, age, ex-ante levels of productivity and capital intensity, and intensive margin of trade. We also show that firms become more labor intensive by demanding more skilled workers.

Разработка методологии оценки экспортного потенциала и ее апробация на примере Республики Узбекистан

This paper proposes a universal methodology for assessing export potential of different countries. It takes into account both external and internal supply and demand factors. The methodology is based on the assessment of various trade indices, such as the Balassa index, trade complementarity index and export specialization index. In addition to analyzing the export capabilities of countries, the methodology also focuses on analyzing the countries’ presence in foreign markets (through the geographical structure of imports). The presented methodology is complemented by the estimation of output multipliers (based on Input — Output tables). The calculation of output multipliers takes into account additional induced effects resulting from the growth of household and government incomes, which are partly spent on additional consumption. Complementary analysis of trade indices and output multipliers (including induced effects) allows to identify sectors and products that will most stimulate economic growth by increasing exports. The proposed methodology has been tested on data for the Republic of Uzbekistan in terms of intensive margin of trade. The results of the analysis show that the methodology can be used as a basis for preparing export development programs for individual countries. The methodology could be improved by a deeper analysis of foreign trade barriers, domestic supply factors and extensive trade margins. However, up-to-date information on these improvement factors is not always publicly available.

How Wide is the Euro?

This paper examines the impact of Euro invoicing on Italian exports to non-EU countries. In addition to examining the role of currency invoicing on the intensive and extensive margin of trade, we introduce the ‘entrenched’ margin of trade. We define the entrenched margin of trade as the number of transactions between two countries of a particular good. With highly disaggregated data, we use a two-stage methodology to predict the probability of Euro dominated Italian exports and then use that predicted probability on the intensive, extensive and entrenched margin of trade. Results show that the probability of Euro dominated trade invoicing reduces all three margins of trade. Specifically, a 10% increase in probability of Euro dominated Italian exports has roughly the same impact as additional 1532 km on the intensive margin of trade, 1096 km on the extensive margin of trade and 1314 km on the entrenched margin of trade. The negative effect of Euro invoicing is most consistent with lower-middle income trading partners and more thinly traded goods. We surmise that these results are due to varying access to financial instrumentation among Italian trade partners and a trade diversion effect of Italian exports to EU countries versus non-EU markets.

Firm size‐specific trade effects of regional trade agreements: Estimating extensive and intensive margins of trade

AbstractWe estimate the impacts of Korean firms’ participation in regional trade agreements (RTAs) on the extensive and intensive export margins by identifying exporting firms based on their firm size—small and medium‐sized enterprises (SMEs) and large enterprises (LEs) at the 5 399 HS six‐digit commodity level—and specifying characteristics of RTAs from 2004 to 2015. We apply the EK Tobit estimation technique to control zero trade and the OLS estimation with importer‐product and time fixed effects to alleviate the endogeneity problem. We find that firm size, product type, and depth of RTA significantly matter. Specifically, we find that deeper RTAs with larger, developing, and closer members significantly enhance the export creation effects of SMEs and LEs. Regarding the firm size‐specific effects, we find that SMEs are less sensitive to exploiting RTA participation but more sensitive to the import market size, bilateral and relative trade costs, and the RTA characteristics. LEs’ export creation is mainly driven by the intensive margin, while SMEs’ export creation is driven by extensive and intensive margins (slightly more by the extensive margin). For the product‐specific effects, we find that Korea's major exportable products such as chemicals, basic metals, motor vehicles, and transport equipment generate significantly strong export creation effects for both LEs and SMEs through their participation in RTAs.

The effectiveness of embargoes: Evidence from Russia

AbstractWhile sanctions have been an increasingly popular instrument of Western foreign policy over the past several decades, retaliatory measures by non‐Western targets of Western sanctions are a more recent development. In this study, I focus on the first such incident in recent history: the Russian retaliatory embargo imposed in August 2014 in response to the anti‐Russian sanctions that have been in place since March 2014. I formulate a comprehensive approach to analysing the impacts of such retaliations on trade and how retaliating countries deal with lost trade. Towards that goal, I use a quadruple difference approach with high‐dimensional fixed effects to disentangle various effects of the retaliatory embargo on the extensive and intensive margins of trade. I find that such retaliation comes at a cost to both the retaliating country and the target of retaliation, while not being effective as Russian sanctions are still in place today. I estimate that the total loss of trade from such retaliation amounts to about 42 billion USD in the first 1.5 years after the imposition of the embargo. The disturbances caused by such retaliation destabilise bilateral trade by causing negative spillovers and significantly increase the costs of retaliation as an economic policy or political strategy. Note: This paper was written prior to the Russian invasion in Ukraine on 24 February 2022.

Economic growth takeoffs and the extensive and intensive margins of trade

AbstractIn this study, we use a gravity model to investigate the relationship between exports and sudden, prolonged increases in economic growth. Our main contribution is we decompose exports into the extensive and intensive margins when considering this relationship. Using the definition of takeoffs in a country's growth process from Aizenman & Spiegel, we identify 142 economic growth takeoffs. We find that the extensive margin is an important mechanism for export growth and, ultimately, economic growth. We also find evidence that exports increase significantly immediately before, and during, a growth episode, with the extensive margin being entirely responsible for the observed increase in exports. Finally, we find that developing countries see a larger percentage point increase in the extensive margin and decrease in the intensive margin during a takeoff. These results suggest that takeoffs may spur a reduction in the fixed costs to exporting, which propel an increase in the extensive margin. Therefore, export diversification appears to be a potential policy option for those seeking to increase the chances of a growth takeoff in their country, and takeoffs seem to present an opportunity for further export diversification.

SMEs' heterogeneity at the extensive margin and within the intensive margin of trade

ABSTRACT In this paper, we contribute to the literature on firm-heterogeneity and trade, by looking not only at the firm-level determinants of trade participation (i.e. extensive margin) but also at differences between firms with different levels of trade intensity (i.e. intensive margin). Further, we compare firms that are born ‘local’ and display different scales of international exposure to firms that are born ‘global’, i.e. access international markets soon after their birth. Using a large World Bank dataset of SMEs from 112 countries and qualitative dependent variable models, our analysis uncovers the heterogeneity of SMEs not only at the extensive margin but also within the intensive margin of trade. Born local and born global firms present different characteristics.

Trade Liberalization Along the Firm Size Distribution: The Case of the EU-South Korea FTA

In 2011, the EU-South Korea Free Trade Agreement (EUKFTA) entered into force. With its focus on non-tariff barriers (NTBs), it is a leading example of a deep new generation agreement. Using detailed French customs data for the period 2000 to 2016, we investigate how exporters of different size have benefitted from the agreement. Applying a diff-in-diff strategy that makes use of the rich dimensionality of the data, we find that firms with larger pre-FTA sizes benefit more from the FTA than firms at the lower end of the size distribution, both at the extensive (product) and the intensive margins of trade. The latter finding is in surprising contrast to leading theories of firm-level behavior. Moreover, we find that our main result is driven by NTB reductions rather than tariff cuts. In shedding light on the distributional effects of trade agreements within exporters, our findings highlight the need for effective SME-chapters in FTAs.

Kazakhstan in China’s Belt and Road Initiative: An Empirical Analysis of Extensive and Intensive Margins of Trade

An important development of the One Belt One Road Initiative (OBOR) is to promote qualitative improvements in trade and trade regulation among participating countries. This paper provides an analysis of bilateral trade between China and Kazakhstan, covering a period of time from 2002 to 2017 and divided into major trade categories. The main purpose of this work is to review the bilateral relations between Kazakhstan and China and determine the development of trade at the initial stage of the OBOR project. To solve this problem, two analyses were chosen and, the results of this analysis may show an increase in trade turnover in those product categories that were previously stated in the project. Firstly, in order to investigate the gap of intensity, and extensity bilateral trade positions used the Hummels-Klenow indices for export margins of trade. Secondary to assess the relationship at the intra-industry level used analysis of the intra-industry trade (IIT) activities developed by Grubel and Lloyd. The empirical analysis of the IIT index is represented as partially balanced. China’s performance was analyzed as intensive in the main elected categories such as the increase in the export intensity of trade in large volumes in product categories. The development of the project is confirmed by a numerical increase in interest in the categories stated in the project earlier.

ICTs quality and quantity and the margins of trade

Given the importance of the fixed costs of exporting, we investigate how information and communication technologies (ICTs) relate to the extensive and intensive margin of trade (the fraction of products that are exported and the market share, respectively). We use a novel dataset on the quantity and quality of ICTs, namely the number of subscriptions (per capita) and the average quality of subscriptions (bandwidth). To test this relationship, we use an augmented Gravity Model of Trade with ICTs using panel data and controlling for multilateral resistance. Regression results for 150 countries over 1995–2014 provide robust evidence that ICTs matter for the extensive margin of trade. The evidence is even stronger for developing countries in terms of quality. Although the number of subscriptions matters for the extensive margin, the quality matters even more. While having a device helps producers and consumers access world markets, how much information these devices can share and how stable connections are also matter.

The Trade Effect of the EU’s Preference Margins and Non-Tariff Barriers

Nowadays, trade negotiations afford both liberalism- and protectionism-oriented policies. Indeed, in recent decades, the developed countries have been actively engaged in negotiating many preferential agreements to integrate developing countries (DCs) into world trade and encourage their economic growth, but many of these schemes contrast with the complex rules, often imposed on international markets, that still are an obstacle for exporters. Their presence and related costs reduce the importance of preferential trade agreements (PTAs) in increasing trade flows. This article attempts to assess the impact of preferential trade policies on trade flows controlling for different non-tariff barriers (NTBs), using a structural gravity model. The analysis uses disaggregated data, registered in the year 2017, on EU imports (defined at level HS-6 digit) from a large number of exporters (187 developed and developing countries) and also includes the intra-EU trade. Our results show robust and positive estimates for the impact of preferences on bilateral trade flows, however, higher non-tariff barriers are likely to play a role in reducing both the extensive margins of trade, and so tariff preferences alone are not sufficient to access international markets. The impact of NTBs on the intensive margin of trade is ambiguous; some measures may act as catalysts and therefore increase trade, and others may act as an additional cost of trade and thus hinder trade.

The WTO is not passé

Abstract The empirical literature on the effect of trade agreements has reached a consensus that WTO effects are insignificant or modest at best especially compared to the robust and strong positive effect of preferential trade agreements (PTAs) on bilateral trade (Rose, 2004; Eicher and Henn, 2011; Baier and Bergstrand, 2007, 2009). In this paper, we show that previous work that reports “average treatment effects” on trade flows fails to account for the heterogeneity in the effects of trade arrangements over time, leading to an underestimation of the WTO effect on bilateral trade. We present semi-parametric estimates of the impact of WTO membership, allowing for heterogeneity of WTO effects over time. We find evidence for strong WTO effects over time, with the WTO effects increasing almost monotonically with years of membership. In fact, in the long-term, the magnitude of the WTO effect exceeds those of the PTA effects. We also find that the strongest WTO effect over time is for destinations that are developing countries that underwent rigorous accession procedures to join the WTO. Disaggregating PTAs into bilateral, multilateral, and deep integration (customs union, common markets, and economic union), we find that the long-term effects of WTO membership dominate bilateral and multilateral PTAs but fall short of deep integration arrangements. Finally, we show that WTO membership increases both the extensive and intensive margins of trade over time, with a stronger impact on the former. Our results are consistent with gradual trade liberalization and declining trade policy uncertainty over time, following WTO membership.

Anti-dumping activities against China: patterns and effects

This paper provides a thorough description of anti-dumping activities in the period 1980–2015, with a focus on measures imposed by the European Union and the United States. We document a series of stylized facts, such as the emergence of China as a major target of administered protection, the concentration of duties in few sectors, and the increasing share of intermediate goods subject to anti-dumping measures. Product-level information on Chinese exporting firms shows that anti-dumping does indeed reduce exports and it has an impact on both the extensive and the intensive margin of trade. Moreover, the price of targeted products tends to rise marginally, so that the fall in export quantities is particularly strong.

Financial Dependence and Intensive Margin of Trade

We find that financial markets and institutions play distinctive roles in helping exporters survive in foreign markets. The relative importance of banks versus stock markets for export success shifts both across different groups of products and between short-term and long-term export survival. The distinction between large and active stock markets matters as well, especially when it comes to products requiring high levels of working capital. Our results also highlight the importance of deep stock markets for exporters lacking collateralizable assets and the necessity of well-established export links for the successful use of trade credit as a substitute for bank credit.

Firms’ heterogeneity and margins of trade under uncertainty

ABSTRACTThis study provides empirical evidence for the impact of uncertainty on the firms' export decisions. In the heterogeneous firms model, the firms' export decisions are affected by uncertainty and the firm’s risk-taking behavior along with productivity and the firms' size. The estimates show that risk-taking firms have higher probability of exporting relative to risk-neutral and risk-taking firms at 91 percent. For relatively small-sized firms, the risk-taking behavior does not make much difference in terms of probability of exporting. However, there is considerably larger impact of increase in the firm size on the probability of exporting in case of risk-taking firms. The firm-specific uncertainties also negatively affect the intensive margins of trade; consequently, firms spread their costs of adjustment over more than one period instead of making adjustments at once.

Non-tariff measures, quality and exporting: evidence from microdata in food processing in Ukraine

Abstract Domestic non-tariff measures (NTM) influence firm’s production and import decisions. We introduce NTMs into a model with heterogeneous firms. NTMs increase the cost of production and play a role of a positive demand shifter. Interplay of these two factors leads to ambiguous impact of NTMs on extensive and intensive margins of trade. We test predictions of the model by looking at food-processing firms in Ukraine in 2008–2013. Evidence shows that more SPS regulations on inputs in upstream industries lead to exports of better quality products. At the same time, mandatory certifications have a negative impact on quality by limiting access of domestic firms to new technologies and equipment.

Innovation and the Creative Destruction of Trade: A Study of the Intensive and Extensive Margins of Trade for French Firms

AbstractOur study of French exporters examines the causal relationship between innovation and extensive and intensive margins of trade using a propensity score matching and difference‐in‐differences approach. Results show innovation has a positive impact on total exports driven primarily through the intensive margin. To understand the absence of an extensive margin effect, we show new and terminated product–country transactions increase at similar rates in the year of innovation for the treated and control groups but net trade creation for innovators outstrips that of non‐innovators in the following two years implying firms need to innovate in order to survive in export markets.

The Technological Diffusion as a Dimension of the Link Between Exports, Imports, and Growth in Tunisia

This paper is an exploration of the technological dimension that shapes the link between intermediate and capital goods imports (IKGM), manufactured exports (MX), and growth in the case of Tunisia. Within a time series analysis (1970-2016), the author focuses on the extent to which these two components of trade are differentiated and therefore incorporating increasing technological content. By using three-digit SITC-level data of IKGM and of MX, it is shown that weighing simple measures of exports and of imports with a measure of their differentiation reveals that exports are sufficiently differentiated to ensure technological spillovers, on one hand, and the payment of IKGM, on the other hand. The extensive and intensive margins of trade are also explored from the sides of exports and imports. They are put in evidence given the positive impact on growth of IKGM and MX measured in accordance to their differentiated configuration.

The impact of the scope of technological search on path-dependence in export specialization: evidence for European countries

Abstract This paper examines how product relatedness and the breadth of technological search affect the path-dependent development of export specializations across countries documented in prior research. The results of the econometric analysis in this paper show that broader technological search in an industry has a positive impact on the development of comparative advantages in the product lines it exports. The interplay between product relatedness and the scope of technological search has a two-edged character. On the one hand, broader technological search supports adjustments and consolidations of the export baskets on the extensive margin. This contributes to weaken path-dependency. On the other hand, it fosters the competitiveness of products that are related to current export specializations, and thereby promotes path-dependency on the intensive margin of trade. These results differ across countries with different levels of technological capabilities.