International Trade Literature Research Articles

Technology Transfer and North–South

AbstractCostless technology transfer is a standard assumption in the international trade literature, however, by some estimates the average technology transfer cost is nearly 20% of total project costs. This analysis examines the conditions under which the advanced country gains when the transfer of technology from the advanced North to the less advanced South incurs resource costs. Results are derived for the effect on production, wages, prices and welfare of lower transmission and absorption costs, and productivity and population shocks. The framework is extended to examine the implications of an improvement in the enforcement of international intellectual property rights.

The Globalization and Peace Nexus: Findings Using Two Composite Indices

Drawing on the democratic peace theory, the democracy promoting globalisation hypothesis and the conflict inhibiting effects of international trade literature the paper examines empirically the link between peace and globalization. To this effect, it uses two composite indices. The KOF index that allows for the multidimensionality of the globalization process and the GPI that adopts and quantifies a broader notion of peace, allowing for both an internal as well as an external dimension. The sample, dictated solely by data availability, consists of 132 countries and covers the period 2008–2012. The findings from estimating a dynamic panel model using various estimators seem to marginally tilt in favor of a peace promoting globalization hypothesis.

International commodity trade, transport costs, and product differentiation

Transport costs and product quality have received increased attention in the international trade literature. Product quality is a particularly important factor in international trade of high-valued commodities. We observe that significant transport costs for a relatively high quality product represent a natural trade barrier. In this case, transport costs may introduce product differentiation, protecting home-country production of the higher quality product and constraining the foreign exporter to shipping a lower quality substitute. With differential transport costs between a higher and a lower quality product, firms in both countries may gain by implicitly coordinating in an increasingly segmented market and choosing a high-price strategy for both products. Home-country producers clearly gain. Through product differentiation in an oligopolistic market, the foreign producers may also gain when the home producers exploit the transport cost advantage. The international orange juice market, with significant trade volumes in both lower quality frozen-concentrated juice and higher quality not-from-concentrate juice, provides compelling evidence supporting this model.

Investigating the effect of geographical distances and cultural proximity on the Hungarian wine trade

Wine is a very special product from an economic, cultural, and sociological point of view. Wine culture and wine trade play an important role in Hungary. The effect of cultural and geographical proximity on international trade has already been proven in the international trade literature. The size of bilateral trade flows between any two countries can be approximated by the gravity theory of trade. The gravity model provides empirical evidence of the relationship between the size of the economies, the distances between them, and their trade. This paper seeks to analyse the effect of cultural and geographical proximity on Hungary’s bilateral wine trade between 2000 and 2012, employing the gravity equation. The analysis is based on data from the World Bank WITS, WDI, as well as CEPII, and WTO databases. I apply OLS, Random Effects, Poisson, Pseudo-Poisson-Maximum-Likelihood and Heckman two stage estimators to calculate the gravity regression. The results show that in the case of Hungary, cultural similarity and trade liberalisation have a positive impact, while geographical distance, landlockedness, and contiguity have a negative impact on Hungarian wine exports.

Trade Diversification and Crisis Transmission: A Case Study of Thailand

The international trade literature suggests trade concentration is an important factor in the amplification of the global financial crisis. However, the relationship between trade concentration and transmission of the subprime crisis is empirically weak. Thailand is one of the countries with declining reliance on the advanced economies, yet it was greatly affected by the recent crisis. This might result because the formation of global supply chains creates both direct and indirect trade linkages. In this paper, the authors include the effects of both linkages to examine their connection to the transmission of external shocks, as experienced by the Thai economy. If total trade linkages are calculated, Thailand is still found to be highly exposed to advanced markets. Simulation using a computational general equilibrium model also indicates that the country was seriously affected by the financial crisis through indirect channels.

Price, quality and trade costs in the food sector

Recent developments in international trade theory have placed considerable and growing emphasis on the quality of the exported products, showing that it affects both the direction of trade and the countries’ export performances. However, as quality is unobservable, a measurement problem clearly emerges. In this paper we review and apply some of the most recent methods developed in the international trade literature to estimate quality of traded products. We focus on the food sector, where the growing attention on quality and safety issues is leading to an increase in the demand for high quality products. In the first part of our empirical analysis, we investigate the properties of the estimated qualities, drawing some interesting results. In particular we find that, in contrast with what is often assumed in the literature, quality and prices are imperfectly correlated. The second empirical section is dedicated to the study of the relationship between price vs. quality and trade costs. What emerges is that, interestingly, the price and the quality of food exports are influenced differently by ad valorem and specific trade costs. Moreover, the magnitude of this relationship changes according to the level of product differentiation.

Technology Transfer and North-South

Costless technology transfer is a standard assumption in the international trade literature, however, by some estimates the average technology transfer cost is nearly 20% of total project costs. This analysis examines the conditions under which the advanced country gains when the transfer of technology from the advanced North to the less advanced South incurs resource costs. Results are derived for the effect on production, wages, prices and welfare of lower transmission and absorption costs, and productivity and population shocks. The framework is extended to examine the implications of an improvement in the enforcement of international intellectual property rights.

Social interactions of migrants and trade outcomes

This paper investigates the impact of social interactions with immigrants on bilateral trade in French regions. Applying data on the distribution of immigrants in 95 French counties ("départment" in French) during 5 years, a measure of formation of networks is proposed and its impact is tested on international trade, providing a direct measure of the impact of social interactions on the economy. Direct comparisons confirm this measure as more complete and robust than measures used in international trade literature.

When Do Currency Unions Increase Trade?

A stylized empirical fact in the international trade literature is that currency unions increase trade. This “Rose effect” suggests that a country pair that shares a common currency will, on average, trade three times as much as countries that don’t. In this paper, I question whether currency unions have heterogeneous effects over the distribution of the trade variable. The motivation is that regressions reported in the previous literature give average effects, while common currencies can affect countries’ trade differently over the trade distribution. I build on the same gravity approach and dataset of Rose (2000) to allow easier comparison with existing literature and employ newly developed quantile treatment effect techniques to study what is happening at different quantiles of the trade distribution. Estimation results suggest significant amounts of heterogeneity in the effect of currency unions on bilateral trade.

New Exporter Dynamics

Models in which heterogeneous plants face sunk export entry costs are standard tools in the international trade literature. How well do these models account for the observed dynamics of new exporters? We document that new exporters initially export small amounts and — conditional on continuing in the export market — grow gradually over several years. New exporters are most likely to exit the export market in their first few years. We construct a dynamic discrete choice model of exporting and find that the standard model cannot replicate the behavior of new exporters: New exporters grow too large too quickly and live too long. We assess the quantitative importance of accounting for new exporter dynamics by extending the model to account for these facts. In this model, the present value of exporting falls relative to the baseline model. As a result, the entry costs needed to account for the data are three times smaller than in the baseline model.

Paving the Road to Export: Assessing the Trade Impact of Road Quality

Assessing the trade impacts of domestic transport costs is data demanding and analyses that examine the effects of road quality, a critical aspect in regional and public policy, practically do not exist in the international trade literature. The few studies available rely mostly on distance-based measures as proxies of transport costs which impede analyzing the trade effects of transport-infrastructure improvements. In this paper, we combine highly disaggregated records of export flows with detailed geo-referenced information of the Colombian transport network, including its road quality, as well as real measures of transport costs of shipping goods within the country to measure the trade impacts of improving road quality. We find that the trade effects of improvements in road quality are relatively small on average; however, there is considerable heterogeneity in the magnitude of the effects. We show that longer routes have larger shares of their roads in poor conditions; accordingly, the trade impacts of shipments originated in remote regions are found to be quite substantial.

The growth and patterns of international trade

Over the last 40 years, there has been an unprecedented growth in trade amongst countries, and the growth in trade shows no sign of slowing down. The increases in trade have put tremendous pressure on the maritime and port industries, and these industries have responded with innovations, investment, and greater productivity. International trade and maritime trade are synonyms, and an understanding of the determinants of international trade is central to understanding maritime trade. In this paper, we provide a review of the international trade literature with a focus on the determinants of trade and the evolution of trade modeling. We then present a broad overview of the extent and growth of trade in the context of primary determinants. The basic results are: (1) Trade is growing at a phenomenal rate; (2) Trade is dominated by relatively few countries who tend to remain dominant; (3) While trade of all products is growing, there are large differences in the growth rates, but yet, there is stability in the relative sizes of product markets; and (4) Over the last 40 years, trade has changed from major flows between the US and Europe to major flows between Asia and the US.

Does Online Trade Live Up to the Promise of a Borderless World? Evidence from the EU Digital Single Market

An important EU Digital Single Market policy objective is to achieve an open and integrated market for online e-commerce in the EU, to make it easy for consumers to go outside their domestic market and shop online in other EU Member States. This study applies a standard gravity model of international trade to Google e-commerce data to estimate the prevalence of home bias in online shopping in the EU. It compares how much EU Member States trade domestically and with other Member States, and how much the EU trades with itself and with the rest of the world. The research confirms the findings of the (offline) international trade literature, according to which there is strong home bias. There is no unambiguous evidence about the strengths or weaknesses of the EU Digital Single Market. Strong intra-EU home bias suggests that online consumers have a tendency to stay in their home country market. Equally strong extra-EU home bias suggests that online consumers who do decide to shop abroad have a tendency to stay in the EU however, rather than going to a non-EU country. There are indications that online home bias is lower in a comparable cross-border trade setting in North America. Data and methodological limitations do not allow a more detailed analysis.

The real exchange rate and the structure of aggregate production

This paper proposes a new, production theory approach to the determination of the real exchange rate, which is defined as the relative price of traded to nontraded goods as is common in the international trade literature. Using a Translog real GDI function that describes the aggregate technology of an open economy as a starting point, the real exchange rate can be formally derived as a function of domestic excess savings, the terms of trade, relative factor endowments and technological progress. Empirical results for Switzerland suggest that the main drivers of the real exchange rate are the terms of trade, followed by relative factor endowments. Contrary to conventional wisdom, the Balassa-Samuelson effect does not seem to play a significant role in explaining the long-term real appreciation of the Swiss franc.

The Multinational Firm

This article documents the recent advances in the international trade literature toward understanding the role of multinational firms in the conduct of international commerce. Over the past 10 years, we have developed a better understanding of the incentives firms face in their choice of production location, and we know more about the incentives that induce firms to vertically integrate. Furthermore, the theory literature has progressed from two-country models that cannot capture the richness of multinational firms’ activities to multicountry models that do. The empirics have advanced as well but at a slower pace. Progress has been slowed by the lack of comprehensive data and the difficulties of distinguishing between the various mechanisms proposed by theory.

The German Market for Patents during the “Second Industrialization,” 1884–1913: A Gravity Approach

Using newly collected patent assignment data for late nineteenth- and early twentieth-century Germany and a standard econometric approach from the international trade literature—the gravity model—we demonstrate the existence of border effects on a historical technology market. We show that the geographic distance between assignor and assignee negatively affected the probability of patent assignments, as well as the fact that a state or international border separated the two contracting parties. Surprisingly, we show that the effect of a state border within Germany was nearly as large as the effect of an international border.

Agglomeration premium and trading activity of firms

While most empirical studies in economic geography document a steady and positive correlation between regional density and firm productivity, the impact is not homogeneous across firms. Importantly, recent international trade literature showed that trading firms are different in terms of workforce, size and productivity. We argue that externalities that determine density premium for firms will be affected by the firms' involvement in trade. Indeed, firms active in international trade may employ a different bundle of resources and be organized differently so that they would appreciate inputs and information in a different fashion and intensity. Using Hungarian manufacturing firm level data from 1992 to 2003 at a 150 micro-region level, we show that the elasticity of agglomeration on productivity is much larger for traders than for non-traders. As firms' trade participation is endogenous to firm performance, we offer various treatment methods of this endogeneity issue. We find that our key results are robust and well above the gap suggested by simple self-selection models.

From Comparative Advantages to Competitive Advantages: Biofuel Strategies for Sustainable Development

Energy source and flows have been closely linked with development and industrialization. However, its impact on environment and its sustainability have been exogenous to the tradition development pathway. In this paper we adapt two concepts of Comparative advantages and Latecomer advantages to present an integrated strategy for sustainable development in emerging economies. The idea of comparative advantage has been much discussed within the economic and international trade literature. Latecomer advantages on the other hand has become been a vibrant research area within the management literature. We propose a policy framework focusing on strategies that late industrializing countries can pursue which result from identifying specific national comparative advantages. Here we present the case of India focussing on the biofuels sector. It also draws on the lessons learned from the Brazilian and Argentinian Biofuel industries. This paper analysis the current Biofuels policies and further builds a framework to develop appropriate strategies and to bind the economic opportunities from biofuels sector to aid rural development.

Relative efficiency of specific and ad-valorem tariffs in a model of monopolistic competition

The relative efficiency of ad-valorem and specific tariffs is still an active debate in the international trade literature. Contrary to the general belief about the ad-valorem tariff being superior under various imperfectly competitive market settings, it is shown that the specific tariff generates more welfare under monopolistic competition. We argue that this result is not general. If we follow the empirical evidence that firms use variable mark-ups and use a utility function that allows for it, we find that the ad-valorem tariff is more efficient when consumers’ love for variety is low. The relative efficiency overturns to the specific tariff as consumers’ love for variety increases.

Continuity of a model with a nested CES utility function and Bertrand competition

In recent years models with a nested constant elasticity of substitution utility function and heterogeneous firms involved in some form of competition have become popular in the international trade literature. This paper considers one particular model of this class — with firms competing in prices — and shows continuity of the model as the elasticity of substitution between goods goes to infinity. This result contrasts with the conjecture of prior literature. Continuity of the model ensures consistency of its outcomes when the elasticity of substitution approaches infinity. Therefore, researchers who were reluctant to use this model because of the lack of proof of continuity can now rely on this paper’s result to employ the model in their research.